Semiconductor Strength Drives Sharp Rise in June Manufacturing Sentiment... Non-Manufacturing Weakness Continues

[Financial News] Expectations are rising that manufacturing conditions will improve, led by semiconductors and power equipment. By contrast, non-manufacturing sectors remain under pressure from weak domestic demand, and pessimistic outlooks are expected to dominate next month as well, compounded by high oil prices.
According to the Business Survey Index (BSI) released on the 27th by the Federation of Korean Industries (FKI), the outlook index, which had stayed in the 80s in April and May due to the fallout from the Middle East war, climbed to 98.6 in the June survey, nearing the benchmark of 100. Because it is based on companies' own forecasts, it is considered a key gauge of business sentiment. A reading above 100 means more companies expect conditions to improve than in the previous month, while a reading below 100 indicates that negative views are in the majority.
The FKI BSI survey targets the top 600 companies in South Korea by sales. These firms each generate annual revenue of at least 800 billion won to more than 1 trillion won, and most are mid-sized or large companies.
The manufacturing sector's outlook index for next month rose for the first time in three months, reaching 101.7. In contrast, the non-manufacturing outlook index came in at 95.4, staying below the benchmark of 100 for a sixth straight month.
Among the 10 manufacturing industries surveyed, optimism about improved conditions was especially strong in electronics and communications equipment, which includes semiconductors, at 122.2, followed by general and precision machinery and equipment at 115.0, wood, furniture and paper at 114.3, and automobiles and other transport equipment at 103.2. FKI said that "despite external uncertainties such as the Middle East conflict, business sentiment is recovering rapidly in key manufacturing sectors, including semiconductors." On the other hand, negative outlooks persisted in nonmetallic minerals at 78.6 and petroleum refining and chemicals at 92.9.
In the non-manufacturing sector, which covers seven detailed industries, pessimistic views were also widespread in electricity, gas and water at 61.1, transportation and warehousing at 91.3, construction at 92.7, and information and communications at 92.9, with the exception of wholesale and retail at 109.8 and leisure, lodging and restaurants at 107.7.
For exports, the outlook index stood at 101.1, suggesting that the export expansion trend will continue in June. In particular, the export BSI reached its highest level in four years and three months, since March 2022, when it stood at 104.2. FKI said that "the impact of the semiconductor boom is clearly visible in exports, but companies remain cautious about expanding investment and hiring as they still worry about financing instability and worsening profitability amid economic uncertainty."
According to the Ministry of Trade, Industry and Energy, semiconductor export growth accelerated month by month after rising 102.6% year on year in January, and in April it surged 148.1%. Overall export growth for all items during the same period was 33.9% and 48.0%, respectively, indicating that dependence on semiconductors, the country's top export item, has become relatively greater. Semiconductor exports in the first quarter jumped 139% to $78.5 billion, driven by increased investment in AI servers and higher memory chip prices.
Lee Sang-ho, Head of the Economic Headquarters at FKI, said, "Business sentiment is showing signs of improvement thanks to the strong performance of key advanced industries such as semiconductors, but labor-management conflict over corporate profits has recently emerged as a major management risk."
The survey was conducted over eight days, from the 7th to the 14th of last month. Of the top 600 companies by sales, excluding financial firms, 354 companies, or 59.0%, responded.
ehcho@fnnews.com Jo Eun-hyo Reporter