SMEs post biggest gain in 6 years
Base effect from Sept. auto strike, Chuseok holiday also at play
November outlook at 101.8, signaling continued improvement
Business confidence, which had stumbled last month amid an automaker strike and the Chuseok holiday, rebounded sharply within a month to reach its highest level in four years and two months. Rising production and investment in key industries — semiconductors, automobiles and shipbuilding — spread demand to downstream suppliers, while an influx of Chinese Golden Week tourists and new orders for semiconductor factory and data center construction lifted sentiment in the non-manufacturing sector as well.
The Bank of Korea's October Business Survey, released Thursday, showed the composite business sentiment index, or CBSI, for all industries rose 5.1 points from the previous month to 104.2 — the highest reading since August 2022 (105.5). The gain was also the largest since April 2021 (7.5 points). It marked the first time the all-industry CBSI had exceeded 100 since September 2022, a span of four years and one month.
The CBSI is a sentiment indicator derived from key components of the business survey index, or BSI. A reading above the long-term average of 100 signals that companies are broadly optimistic about the economy; a reading below 100 indicates pessimism.
By sector, the manufacturing CBSI rose 6.1 points to 105.6 — its highest since June 2022 (107.1) and the biggest monthly gain since April 2021 (10.3 points). Falling product inventories contributed 3.5 points to the increase, with production (+1.1 points), financial conditions (+0.9 points) and new orders (+0.8 points) also adding to the gain. A decline in product inventories is generally positive for business sentiment.
The non-manufacturing CBSI climbed 4.3 points to 103.2, its highest since September 2022 (105.6). Profitability (+1.4 points), sales (+1.1 points) and financial conditions (+1.0 point) led the advance.
Among manufacturers, small and medium-sized enterprises stood out. The SME index jumped 11.2 points to 105.6, the largest single-month gain since October 2020 (11.4 points). Large companies rose 3.9 points to 105.1. By business type, domestic-demand firms gained 8.1 points to 103.8, while export-oriented firms rose 1.8 points to 106.1.
Park Yong-min, head of the Bank of Korea's economic sentiment survey team, said the sharp improvement in sentiment among domestic-demand firms and SMEs partly reflected a base effect — last month's Chuseok holiday had reduced working days and the fallout from the automaker strike had weighed more heavily on smaller suppliers. Rising production and investment in key industries such as semiconductors, automobiles and shipbuilding drove demand from downstream industries, and the easing of the exchange rate also reduced the burden of raw materials purchases, Park added.
Looking at individual manufacturing subsectors, automobiles, other machinery and equipment, and chemical products led the improvement.
In automobiles, production and new orders jumped 30 points and 20 points, respectively, as parts suppliers returned to normal operations after the effects of last month's Chuseok holiday and the automaker strike dissipated, and exports picked up. In other machinery and equipment, product inventories fell 12 points as deliveries to downstream industries — including semiconductors, shipbuilding and automobiles — increased. Chemical products also saw production and new orders each rise 19 points, driven by growing orders for secondary batteries and ESS.
In non-manufacturing, wholesale and retail trade, construction, information and communications, and transportation and warehousing led the gains. Wholesale trade benefited from increased business-to-business transactions, including automobile exports by general trading companies and equipment procurement for semiconductor factories. Retail trade was boosted by foreign tourists visiting during the Chinese and Taiwanese Golden Week holidays and by rising demand for pharmaceuticals amid a cold and flu season. Construction saw its business conditions and financial conditions indices rise 12 points and 11 points, respectively, on the back of new orders for semiconductor factories, data centers and residential buildings in the greater Seoul area. The information and communications sector posted a 16-point jump in its sales BSI on higher platform payment volumes, while transportation and warehousing improved 11 points on expanded cargo volumes and rising maritime freight rates.
The improvement is expected to continue in November. The all-industry CBSI outlook for November rose 2.2 points to 101.8 from the previous month's reading of 99.6 — the highest since September 2022 (103.4). The manufacturing outlook gained 1.9 points to 103, and the non-manufacturing outlook rose 2.4 points to 101. However, the outlook for export-oriented firms slipped 1.4 points to 104.4.
The economic sentiment index, or ESI — which incorporates the consumer sentiment index alongside the BSI — rose 0.9 points to 100.8 in October, its highest since June 2022 (103.8), driven by improvements in the manufacturing financial conditions outlook and the non-manufacturing business conditions outlook. The ESI cycle composite, which strips out seasonal and irregular factors, rose 1.0 point to 100.1.
kimstar@heraldcorp.com
