SME business outlook edges up in August, but weak sales remain top concern

The business outlook for South Korea's small and medium-sized enterprises improved slightly in August, driven by brighter expectations for domestic sales and cash flow. The overall business outlook index rose, but the manufacturing sector's outlook worsened and exports are expected to edge down.

According to the Korea Federation of SMEs' August 2026 SME Business Outlook Survey, which covered 3,063 small and medium-sized enterprises, the August Small Business Health Index (SBHI) came in at 80.0, up 1.8 points from the previous month. However, the index remained below the baseline of 100, meaning more companies still expect conditions to deteriorate than improve.

The SBHI had slipped from 79.6 in June to 78.2 in July, but the August reading of 80.0 marks a return to the 80s for the first time in four months, since April's 80.8.

The picture varied by sector. The manufacturing outlook fell 2.4 points to 80.1, while the non-manufacturing outlook rose 3.7 points to 80.0. The service sector was particularly strong, climbing 4.3 points to 81.8 and driving the overall index higher. The construction sector also improved, gaining 0.8 points to 71.1.

Within manufacturing, the outlook improved for industrial machinery and equipment repair, and for leather goods, bags and footwear, but a number of sectors — including textiles and medical substances and pharmaceuticals — posted declines. In the service sector, real estate and wholesale and retail trade saw rising optimism, while arts, sports and leisure services, and repair and other personal services were expected to underperform.

"Weak sales (product sales)" remained the largest operational challenge, cited by 50.7 percent of respondents. Rising raw materials prices followed at 41.1 percent, intensifying competition among businesses at 27.9 percent, and rising labor costs at 24.7 percent.

The average capacity utilization rate at small and medium-sized manufacturers stood at 75.9 percent as of June, up 0.5 percentage points from the previous month. Both small enterprises, at 71.6 percent, and medium-sized enterprises, at 78.4 percent, improved from the prior month.

The survey results suggest that SMEs are moving away from the worst of the downturn, but analysts say it is too early to be optimistic about a recovery.

With the SBHI still well below the 100 baseline and weak sales remaining the top concern, whether domestic demand can recover is the key variable for the second half of the year.

External uncertainty — including US tariff policy — continues to weigh on sentiment, and a slight dip in the exports outlook means both domestic demand and exports will likely need more time before a clear recovery can be confirmed.