SEOUL, April 28 (AJP) — Pessimism among South Korean businesses eased to a 21-month low in April, but the improvement largely reflected inventory drawdowns driven by Middle East supply disruptions rather than a genuine recovery in demand, data showed Tuesday.
The Composite Business Sentiment Index (CBSI) for all industries rose 0.8 point from a month earlier to 94.9, the highest since July 2024, according to the Bank of Korea.
Despite the gain, the index remained below the 100 mark, indicating that negative sentiment still outweighs optimism.
Strip out the inventory effect, and the picture weakens. The central bank estimated that overall sentiment would have slipped by 0.1 point across industries and by 0.4 point in manufacturing.
“While manufacturing conditions improved on sustained exports and higher sales prices, the drop in inventories partly reflects firms running down existing stock to cope with disruptions in raw material supplies,” said Lee Heung-hoo, head of the BOK’s economic sentiment survey team.
Manufacturing sentiment rose 2.0 points to 99.1, its highest level this year and just shy of the neutral threshold. The outlook for next month also improved, climbing 2.1 points to 98.0.
By firm size, large corporations reached the 100 benchmark, while small and medium-sized enterprises (SMEs) lagged at 96.8.
Export-oriented firms continued to outperform, posting a CBSI of 103.4 for a fourth consecutive month, compared with 96.4 for domestically focused companies.
The improvement in manufacturing was overwhelmingly driven by inventories. Falling stock levels contributed 2.3 points to the CBSI, compared with a 0.7-point gain from better business conditions. As a countercyclical component, lower inventories mechanically lift the index even when underlying demand remains weak.
Outside manufacturing, momentum was far weaker. The non-manufacturing CBSI edged up just 0.1 point to 92.1, while the outlook for next month remained unchanged at 91.2.
In services, sentiment deteriorated, slipping to 92.9 from 93.4, as rising oil prices tied to the Middle East conflict pushed up sea and air freight costs, particularly weighing on wholesale and retail sectors.
Cost pressures have emerged as the dominant concern across industries. In manufacturing, the share of firms citing rising raw material prices as a key difficulty surged 13.2 percentage points to 34.2 percent.
In non-manufacturing, the figure rose to 19.4 percent, also the top concern, reflecting elevated energy prices, logistics disruptions around the Strait of Hormuz, and a weakening Korean won, which has depreciated by more than 2 percent from 1,458 per dollar in January to around 1,488 this month.
Detailed indicators point to a widening margin squeeze. The manufacturing business conditions index rose 3 points to 74, with gains in sales and new orders, but profitability fell 5 points to 68 and financial conditions worsened by 3 points to 76.
The raw material purchase price index jumped 12 points to 149, the highest since October, far outpacing the rise in product sales prices, which climbed to 110 — insufficient to offset rising input costs.
The broader Economic Sentiment Index (ESI), which combines business and consumer confidence, fell 2.3 points to 91.7, marking a second straight monthly decline and the lowest level in six months. Its cyclical component also edged down 0.3 point to 94.4, signaling a slowdown in underlying economic momentum.
The survey was conducted from April 9 to 16, covering 3,205 companies, including 1,781 manufacturers and 1,424 non-manufacturers.
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