SEOUL, July 30 (AJP) - South Korea's manufacturing confidence climbed to its highest level in more than four years in July as a wave of AI-related semiconductor investment, data-center construction and strong shipbuilding and defense orders boosted factory activity, Bank of Korea data showed Thursday.
The manufacturing Composite Business Sentiment Index (CBSI) rose 2.0 points from June to 103.2, its highest reading since June 2022 and the third straight month above the long-term benchmark of 100.
Unlike April's improvement, which was largely driven by easing inventory burdens, July's gain reflected stronger underlying demand. New orders contributed 0.8 point to the increase, followed by business conditions (0.7 point), production (0.6 point) and funding conditions (0.4 point), while inventories remained a slight drag.
The data suggest manufacturers are benefiting from expanding production rather than simply clearing excess stock.
Demand was particularly strong across industries tied to the AI supply chain.
Other machinery and equipment makers reported a six-point improvement in business conditions and a 10-point jump in new orders as demand from the shipbuilding, defense and semiconductor industries accelerated.
Medical and precision equipment manufacturers posted a nine-point increase in production and a 14-point surge in new orders, supported by overseas data-center construction and semiconductor manufacturing equipment demand.
Fabricated metal producers also reported improving business conditions as orders from shipyards and industrial plants strengthened while raw-material costs eased.
The broader improvement was reflected across key activity indicators. The sales BSI rose five points to 96, production gained three points to 93 and new orders increased four points to 92. Domestic sales posted the largest increase, climbing eight points to 93, while export sentiment improved two points to 98.
The recovery also broadened beyond Korea's largest exporters.
Business sentiment among exporters rose 1.1 points to 107.5, matching its highest level since June 2022, while manufacturers focused on the domestic market reached 100.0 for the first time in more than two years.
Small and medium-sized manufacturers gained 1.9 points to 97.6, their strongest reading since July 2023, compared with a 0.8-point increase among large companies to 105.3.
Manufacturers also reported easing cost pressures. The raw-material purchase price index fell 11 points to 129, while the profitability index rose six points to 79.
The share of manufacturers identifying higher raw-material costs as their biggest challenge declined 5.9 percentage points to 21.8 percent. However, concern over economic uncertainty increased 2.5 points to 20.6 percent, suggesting geopolitical and global trade risks continue to cloud the outlook.
Confidence outside manufacturing remained subdued.
The all-industry CBSI edged up 0.8 point to 98.5, still below the historical average, as nonmanufacturing sentiment slipped 0.2 point to 95.2 after a sharp decline in June.
Transportation and storage companies cited weaker maritime cargo volumes and higher operating costs, while engineering firms reported softer project orders. Wholesale and retail businesses also faced mounting merchandise costs as elevated shipping rates squeezed margins.
Looking ahead, manufacturers grew more optimistic about August. Their outlook index rose 2.3 points to 100.5, the highest since September 2022, with export-oriented manufacturers reaching 105.0 and large companies climbing to 103.2, both their strongest readings in about four years.
The broader Economic Sentiment Index, which combines business and consumer confidence, rose 1.1 points to 97.9 as improving corporate financing conditions and stronger household income expectations offset lingering weakness in services.
The Bank of Korea surveyed 3,193 companies, including 1,783 manufacturers and 1,410 nonmanufacturers, between July 14 and 22.
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