SEOUL, March 26 (AJP) -South Korean manufacturers turned abruptly pessimistic, with sentiment posting its sharpest drop since the Covid-19 shock in early 2020 as the Middle East crisis spilled into the real economy a month after U.S.-Israeli strikes on Iran.
The country's largest business association, Federation of Korean Industries (FKI), said Thursday its Business Survey Index (BSI) outlook for April stood at 85.1, based on a survey of the country’s 600 largest companies by sales.
The index dropped 17.6 points from March’s 102.7 — which had marked the first positive reading in 48 months — falling back below the baseline of 100 in just one month. The March actual BSI came in at 92.6.
By sector, both manufacturing and nonmanufacturing were in negative territory, at 85.6 and 84.6, respectively, marking the first time in 15 months that both sectors recorded readings in the 80s.
Manufacturing sentiment deteriorated sharply, plunging 20.3 points from March’s 105.9 — the steepest drop since April 2020 during the COVID-19 shock. Nonmanufacturing also fell 14.8 points from 99.4.
Within manufacturing, eight of 10 subindustries were below the 100 threshold, with only pharmaceuticals and electronic and communications equipment posting positive outlooks. All nonmanufacturing subsectors remained negative.
Weakness was most evident in sectors directly exposed to crude supply disruptions. Petroleum refining and chemicals posted a BSI of 80.0, while electricity, gas and water fell to 63.2. Transportation and warehousing stood at 82.6, and nonmetal materials and products — including plastic manufacturing reliant on crude-based inputs — lagged at 69.2.
FKI attributed the broad-based decline to heightened uncertainty stemming from the Middle East conflict, including surging global oil prices and rising ocean freight rates.
Oil prices have Dubai grade has risen over 150 percent so far this year owing to the conflicts in the Middle East and crippling of the core waterway, the Strait of Hormuz, off the Iranian coastline.
All seven major categories in the BSI remained below the 100 mark, including domestic demand (90.8), exports (94.3) and investment (95.4).
The funding conditions index, which reflects corporate liquidity, fell to 89.7 — the lowest since June 2023. The profitability index dropped 7.1 points from the previous month to 90.8, signaling mounting cost pressures.
FKI said companies are facing growing pressure on financial health, citing concerns over inflation from global supply chain disruptions and a slowdown in the real economy.
Lee Sang Ho, head of FKI’s economic division, said rising tensions in the Middle East have heightened concerns over crude supply and dampened business sentiment, calling for swift policy support, including proactive fiscal measures, to prevent external uncertainty from spilling over into the real economy and disrupting corporate activity.
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