South Korea's business sentiment index hits 4-year high on semiconductor strength, services rebound

South Korea's business sentiment climbed to its highest level since September 2022 this month, as continued strength in the semiconductor sector combined with a broad improvement in non-manufacturing industries.

The Composite Business Sentiment Index (CBSI) for all industries rose 1.1 points from the previous month to 99.6 in August, the Bank of Korea said Wednesday, marking the highest reading in three years and 11 months since September 2022, when it stood at 102. The index has now risen for two consecutive months, following a reading of 98.5 in July.

"Semiconductors performed well this month, but the bigger driver was non-manufacturing — particularly the expansion of vacation-season demand for transportation and leisure, along with a recovery in broadcasting, film and services," said Park Yong-min, head of the Bank of Korea's economic sentiment survey team.

The CBSI measures how businesses perceive current economic conditions. It is calculated using key sub-indices from the Business Survey Index (BSI) — five from manufacturing and four from non-manufacturing. A reading above 100 indicates sentiment is more optimistic than the long-term average, while a reading below 100 signals pessimism.

By sector, manufacturing rose 0.6 points from the previous month to 103.8, driven mainly by improvements in product inventory (+0.6 points) and financial conditions (+0.4 points). Non-manufacturing gained 1.5 points to reach 96.7, led by gains in sales (+0.6 points) and financial conditions (+0.5 points).

Within manufacturing, large enterprises fell 1.6 points from 105.3 to 103.7 — the steepest monthly decline since February, when the index dropped 2.2 points. Small and medium-sized enterprises, by contrast, rose 2.2 points over the same period, from 97.6 to 99.8. Park attributed the divergence to vacation patterns, noting that large companies tend to take more time off during the holiday season. "Looking at this year's trend overall, large companies, small and medium-sized enterprises, exporters and domestic-demand firms are all improving broadly," he added.

Drilling into the BSI figures, the electronics, video and communications equipment segment saw its financial conditions and product inventory improve by 9 points and 3 points, respectively, boosted by rising printed circuit board prices and the drawdown of stockpiled inventory during reduced vacation-season operations. The food sector posted gains of 8 points in business conditions and 9 points in financial conditions, supported by falling import ingredient costs as the exchange rate declined and higher product selling prices. In chemicals and chemical products, product inventory improved 5 points, reflecting a combination of expanding orders from downstream industries and raw material supply disruptions stemming from the war in the Middle East.

In non-manufacturing, the transportation and warehousing sector saw business conditions and sales rise 6 points and 12 points, respectively, on the back of higher maritime freight rates and growing demand for cargo and vacation-season passenger transport. The information and communications sector improved 5 points in business conditions and 3 points in financial conditions, led by video, broadcasting and IT service firms. Professional, scientific and technology services gained 2 points each in profitability and financial conditions, driven by increased orders at architecture and design firms and semiconductor-related engineering companies.

The CBSI outlook for next month came in at 99.6, up 3.1 points from the previous month's forecast. Both manufacturing and non-manufacturing sectors are expected to improve — manufacturing is projected at 102.5, up 2 points, while non-manufacturing is forecast at 97.6, up 3.9 points.

The manufacturing improvement is expected to be led by electronics, video and communications equipment, food, and chemicals and chemical products, while non-manufacturing gains are anticipated in wholesale and retail, transportation and warehousing, and arts, sports and leisure.

"In September, manufacturing also improved, but the main driver was non-manufacturing — sectors that were already doing well, such as transportation and warehousing, information and communications, professional and scientific services, and arts and sports, continued to perform. On top of that, there is the Chuseok holiday effect, and wholesale and retail, which had been somewhat sluggish, also improved," Park said.

Meanwhile, the Economic Sentiment Index (ESI) — a composite of the BSI and the Consumer Trend Index (CSI) — rose 1.5 points from the previous month to 99.4 this month. The cyclical component came in at 96.9, up 0.4 points from the previous month.