Production, domestic demand pick up, but small merchants feel the pinch

Key real-economy indicators for small and medium-sized enterprises, including production and domestic demand, are showing signs of improvement — but small merchants say conditions on the ground are getting worse.

According to the August edition of the KOSI SME Trends report released Thursday by the Korea Institute for Small and Medium-sized Enterprises and Startups (KOSI), SME manufacturing output rose 3.4 percent in June from a year earlier, reversing declines of 0.8 percent in April and 4.1 percent in May. KOSI attributed the rebound to a normalization of supply chains at auto-parts makers, which drove higher output in automobiles and machinery equipment.

SME service-sector output also rose 3.8 percent year-on-year in June, led by wholesale and retail trade, as domestic demand improved. The gain extended the sector's winning streak to three consecutive months, following increases of 4.0 percent in April and 2.2 percent in May.

Domestic demand indicators also improved. Retail sales in June reached 57.8 trillion won ($41.7 billion), up 4.4 trillion won, or 8.4 percent, from a year earlier. Durable goods sales rose 14 percent, while non-durable and semi-durable goods gained 6.8 percent and 5 percent, respectively. Among durables, the biggest gains came from communications devices and computers, up 23.5 percent, home appliances, up 15.2 percent, and passenger cars, up 13.6 percent.

Online spending continued to climb. Online shopping transactions in June totaled 24.6 trillion won, up 10.7 percent from a year earlier. Communications devices led the surge at 144.4 percent, followed by automobiles and auto accessories at 56.8 percent and food and beverages at 10.4 percent.

Broader business sentiment among small and medium-sized enterprises also improved. The SME Business Health Index for July came in at 78.1, up 5.8 points from a year earlier. The August outlook index rose 5.4 points to 80.0. The manufacturing sector's August outlook stood at 80.1, up 3.4 points, while the service sector's rose 7.3 points to 81.8.

The number of workers employed at small and medium-sized enterprises — those with fewer than 300 employees — reached 25.692 million in July, up 43,000 from a year earlier. Employment at firms with one to four workers rose by 210,000 to 10.227 million, while firms with five to 299 employees saw employment fall by 166,000 to 15.466 million.

For small merchants, however, the mood was far colder. The small merchants' Business Survey Index for July fell 5.9 points year-on-year to 55.6, and the August outlook index dropped 5.7 points to 71.0. A reading below 100 signals deteriorating conditions; a reading of 100 or above indicates improvement.

KOSI said that while key indicators such as SME manufacturing and service-sector output and domestic retail sales are trending upward, the outlook BSI for small merchants and traditional markets continues to slide. "Sustained measures to ease cost burdens — including energy costs — are needed to restore small merchants' sense of economic conditions," the institute said.