Darkest Economic Prospect for the Fourth Quarter Since April 2001

It is expected that the economic prospect for the manufacturing sector for the last quarter of 2004 (October-December) will be the worst since the first quarter of 2001, owing to sluggish domestic demand and the increased cost of raw materials.

Yesterday, the Industrial Bank of Korea announced the result of its survey of 1,218 companies in 21 business fields regarding the industrial economic prospect for the fourth quarter of this year, and also that the manufacturing field’s Business Survey Index (BSI) was reported as 90.

This report was the lowest since the first quarter of 2001 (BSI 87).

If the BSI is below 100, it means companies forecasting worse economy are more than companies forecasting better economy

According to the Industrial Bank’s question on foreseeing the business performance for the upcoming final quarter, 24.3 percent of companies responded as negative and 14.5 percent expected a better performance.

With business categories, most fields except industrial electronics, ship building industry, and petrochemical are expected to experience a difficult time. The ship building industry has secured three years worth of work, and the petrochemical field looks forward to a favorable period since its exports prices will remain high for now.

According to business size, conglomerates scored a BSI of 94 points, and small- and mid-sized companies had a BSI of 87, so both groups are expected to suffer a tough time continuously following the previous quarter.

Meanwhile, with the increased BSI gap between conglomerates and small- and mid-sized businesses, with a 4-point and 2-point gap in the second and third quarter respectively, small- and mid-sized businesses are forecasting a less favorable economic situation than are the conglomerates.

The equipment index also showed a gap between the two business groups with 105 and 91 respectively, so the polarization between conglomerates and small- and mid- sized companies is expected to continue.

An employee at the Industrial Bank of Korea said, “To recover the manufacturing sector’s business performance, encouraging a confident outlook for a promising future is the key factor,” and added, “To achieve this goal, securing powerful growth drives and an expansion of the social safety net should be guaranteed.”

Seung-Jin Kim sarafina@donga.com