Manufacturing Companies Dour over Economy

Despite the government’s economic stimulus packages, most manufacturers are negative about the economic outlook for the next 27 months. In particular, more companies are planning to reduce their facilities investment. That would create a vicious cycle in which the economic slowdown pulls down consumption and domestic investment, which in turn leads to a further slowing of the economy.

According to the June survey of business sentiment released by the Bank of Korea Friday, the BSI, or Business Survey Index, for the manufacturing sector stood at 70, down from 75 in May. This is the lowest figure since the first quarter of 2001, when the BSI for the manufacturing industry stood at 61.

The BSI in July was 73, down from 79 in June. A BSI reading of below 100 means companies predicting business conditions to worsen outnumber those expecting an improvement. The BSI for companies producing commodities aimed at the domestic and export markets dipped to 70 and 68, respectively, the lowest since the first quarter of 2001.

Manufacturing companies predicted that business activities such as sales, production and facilities investment would not improve this month. The BSI for present and future inventory levels stood well above 100, registering 116 and 113, respectively, while the BSI for sales growth dropped from 79 in May to 75 in June. The BSI for future sales growth fell from 84 in June to 77 in July. This suggests that decreasing sales will resulting in bulging inventories. The June BSI for capacity utilization also fell to 83 from 87 in May, and the July BSI for future capacity utilization declined to 84 from 89 in June. The BSI for future facilities investment was 90, indicating sluggish investment in facilities. Fears of decreasing profits are mounting, as the BSI for business profitability decreased to 77 in July from 79 in May.

Non-manufacturing sectors such as retail and wholesale businesses, construction and accommodations also see a grim future, with their combined BSI standing at 67. Sales growth BSI and profitability BSI for non-manufacturing companies stood at just 71 and 79, respectively.

Sluggish domestic demand was cited as the most difficult factor in doing business, followed by uncertain economic situation, slowing exports, rise in raw materials costs and fiercer competition.

Kwu-Jin Lim mhjh22@donga.com