Large Biz Sentiment Falls to 5-Year Low

The aftermath of the U.S. financial crisis has spread to Korea’s real economy.

The Bank of Korea yesterday released its business survey index for September, a figure representing economic conditions perceived by 2,154 large corporations.

The index dropped 10 points from a month ago to 75, the lowest since 70 posted in August 2003.

The BSI on capital conditions dropped four points from August to 81, the lowest since January 2003.

Similarly, the BSI on the performance forecast for large corporations this month plunged five points to 81, the lowest since 79 in January 2005.

A central bank official said, “Economic conditions perceived by large corporations have worsened since operational capacity decreased due to the Chuseok holidays, the expected slowdown in the global economy amid sluggish domestic demand, and dim prospects for export growth.”

Both the cyclical component of the coincident composite index, which represents economic conditions, and the 12-month smoothed change in the leading composite index, which forecasts economic conditions, have fallen for seven straight months. The dive is the longest by the two indexes since 1981, when the government began collecting relevant data.

A report by the Korea National Statistical Office also said mining production increased a mere 1.9 percent year-on-year in August, the lowest growth since a decline of 3.1 percent in September last year.

The office said industrial production slowed down in August due to a two-day drop in the number of working days and sluggish exports due to the global slowdown. In the service industry, production grew just 1.6 percent from a year ago in August, the lowest a drop of 0.4 percent in April 2005.

The cyclical component of the coincident composite fell two-tenths of a percentage point from the previous month, marking the seventh consecutive month of decline. The 12-month smoothed change in the leading composite index dropped four-tenths of a percentage point from August, dropping for nine straight months. That shows the bad shape of the Korean economy and its unlikely recovery prospects over the short term.

Lee Tae-seong, director of the statistical office’s economic statistical department, said, “Korea’s economy is expected to slow down due to the aftermath of the global financial crisis. Given that neighboring nations will also suffer from the economic slowdown, Korea’s economic conditions are unlikely to recover over the short term.”

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