Business sentiment rebounded this month, led by manufacturing industries including semiconductors, shipbuilding and defense, reversing last month's decline. The outlook for next month improved across both manufacturing and non-manufacturing sectors.
The Bank of Korea released its "July 2026 Business Survey and Economic Sentiment Index (ESI)" on Thursday, showing the composite business sentiment index (CBSI) for all industries rose 0.8 points from the previous month to 98.5. The index had risen in April and May before falling in June — its first decline in three months — only to rebound again within a month.
The CBSI measures how businesses perceive overall economic conditions. It is calculated using key sub-indexes drawn from the business survey index (BSI) — five for manufacturing and four for non-manufacturing. A reading above 100 indicates conditions are more optimistic than the long-term average; a reading below 100 signals pessimism.
By sector, manufacturing rose 2 points from the previous month to 103.2, driven mainly by new orders (up 0.8 points) and business conditions (up 0.7 points). Non-manufacturing fell 0.2 points to 95.2, weighed down primarily by tighter cash flow (down 0.5 points).
Unusually, small and medium-sized enterprises outpaced large companies in improvement, and domestic-demand firms posted stronger gains than exporters. The CBSI for large companies rose 0.8 points to 105.3, its highest since May 2022 (109). SMEs climbed 1.9 points to 97.6, their best reading since July 2023 (99.1). Among exporters, the index rose 1.1 points to 107.5 — the highest since June 2022 (107.5) — while domestic-demand firms gained 2 points to reach 100, the highest since June 2023 (101.3).
Lee Heung-hu, head of the Bank of Korea's economic sentiment survey team, said strong demand from upstream industries such as semiconductors, defense and shipbuilding drove improvements in business conditions among metal processing and machinery and equipment firms, and that the effect filtered down to smaller companies. "Overall, business sentiment has improved," he said.
Looking at the BSI in detail, manufacturing performance this month improved as demand from upstream industries — including semiconductors, shipbuilding and defense — expanded. Business conditions and new orders for other machinery and equipment rose 6 points and 10 points, respectively. Medical and precision instruments also improved, with production up 9 points and new orders up 14 points, driven by growing orders tied to overseas data center construction and semiconductor production. Metal processing saw business conditions and cash flow rise 5 points and 9 points, respectively, as demand from the shipbuilding and plant industries expanded and raw material prices fell.
In non-manufacturing, the transportation and warehousing sector saw business conditions and profitability fall 9 points and 8 points, respectively, due to declining maritime cargo volumes and rising costs. Professional, scientific and technology services saw profitability drop 5 points and cash flow fall 6 points as engineering firms reported shrinking order books. Wholesale and retail trade deteriorated 3 points in business conditions as purchase prices rose on higher maritime freight rates. Lee said non-manufacturing performance in July declined mainly in transportation and warehousing and the shipping sector, with cargo volumes falling — particularly for petrochemical products — while freight and logistics costs rose. "The fallout from the Iran war appears to be affecting the services sector," he said.
The CBSI outlook for next month came in at 96.5, up 1.3 points from the previous month. Both manufacturing and non-manufacturing improved: manufacturing rose 2.3 points to 100.5, while non-manufacturing gained 0.5 points to 93.7.
The manufacturing improvement was led by electronics, video and communications equipment, shipbuilding and other transportation, and metal processing. Non-manufacturing was lifted by facility management, business support and leasing services, along with construction and real estate.
Meanwhile, the ESI — which combines the BSI and the consumer sentiment index — rose 1.1 points from the previous month to 97.9 this month. The cyclical component climbed 0.2 points to 95.9, its highest since October 2022 (96.6), a 3-year, 9-month high. "We have not yet returned to the long-term average, but overall sentiment among businesses and consumers is gradually recovering," Lee said.
kimstar@heraldcorp.com
