South Korea's manufacturing sector is expected to remain sluggish in the fourth quarter of this year. Outlooks for sales, exports and capital spending all worsened from the previous quarter, with large companies anticipating an improvement while smaller firms stayed pessimistic. With rising raw material costs, weak domestic demand and external uncertainty cited as the main obstacles to business, expectations for a broader recovery in manufacturing remain limited.
The Korea Institute for Industrial Economics and Trade said on the 18th that its business survey index (BSI) of 1,500 manufacturers, conducted from Sept. 7 to 18, put the fourth-quarter outlook for business conditions at 97. That matched the previous quarter and remained below the neutral reading of 100. A BSI above 100 means more companies expect conditions to improve, while a reading below 100 means more expect them to deteriorate.
By category, the sales outlook fell to 97 in the fourth quarter from 99 in the third. Exports slipped to 100 from 101, and capital spending to 99 from 100. The outlooks for inventories and ordinary profit rose one point each from the previous quarter, to 99 and 95.
Sales outlooks diverged by industry. Wireless communications equipment, at 103, and displays, at 102, topped the neutral line, indicating more companies expect sales to improve. Semiconductors and chemicals each stood at 99, while automobiles, shipbuilding and bio-health came in at 97. Steel, at 91, and textiles, at 89, remained relatively low.
The gap by company size was also pronounced. Large companies posted a sales outlook of 104, with expectations of improvement prevailing, while smaller firms came in at 95, meaning more of them expect weakness.
Rising raw material costs were identified as the main burden on business. Asked what was weighing on their operations, manufacturers most often chose "a heavier raw material cost burden," at 53%, followed by "weak domestic demand and inventory buildup" at 38% and "continued external uncertainty" at 36%.