Korea: Business confidence ticks up to three-year high in May

The Bank of Korea’s forward-looking business confidence indicator (BSI) for the manufacturing sector inched up from 82 points in April to 84 points in May—the highest reading since May 2014. Despite the increase, the indicator remains firmly entrenched below the 100-point threshold, which signals pessimism among a majority of Korean businesses.

Looking at the details, business sentiment among export-oriented firms continued to climb up on the back of newfound demand for semiconductors, automobiles and petrochemicals. The mood among Korean exporters had taken a dip in April due to the geopolitical rift with China that provoked a string of retaliatory measures against several Korean industries. However, the dependence of China on crucial Korean exports, including semiconductors and other high-tech components, coupled with increased demand for Korean goods elsewhere, has allowed most exporters to escape largely unscathed from the diplomatic quarreling.

Sentiment among domestic-oriented manufacturers also inched up in May, suggesting that Korean firms continue to view positively the upcoming elections on 9 May which will, hopefully, put months of political uncertainty behind them. Korean manufacturers, however, felt less sanguine regarding raw material purchase prices and output prices. Survey respondents repeatedly cited currency market volatility and sluggish domestic consumption as the main risks to the outlook, which highlights the challenges the Korean economy is still facing.

FocusEconomics Consensus Forecast panelists expect fixed investment to expand 3.4% in 2017, which is up 0.3 percentage points from last month’s forecast. In 2018, the panel expects growth in fixed investment to increase 2.4%.