Business confidence drops in February

By Kang Seung-woo

Business confidence among Korean firms has dropped to its lowest point in more than a year due to higher energy and commodity prices, the Bank of Korea (BOK) said Monday.

The central bank’s business survey index (BSI) for manufacturers was 88 for February, down from 90 in January and representing the lowest reading since 86 in August 2009. The index for non-manufacturing firms hit a 17-month low of 79.

The bank regularly conducts the surveys on companies to measure their confidence on the economy and their finances, and a reading above 100 means that optimists outnumber pessimists.

Local companies are particularly alarmed by soaring fuel and raw material prices, which have been stoked by the recent political unrest in the Middle East.

The cost of Dubai Crude, Korea’s benchmark, was over $110 per barrel on Friday, while the rise in import prices for January marked the fastest pace in 23 months due to the elevated cost of commodities.

The BOK’s survey also revealed the business community’s optimism for the coming months, despite rising costs. The expected BSI for March among manufacturing firms was measured at 96, compared to their February outlook of 91, based on anticipation of better sales, new orders and elevated factory operation.

“Although the cost of raw materials is on the rise, local manufacturers seem to believe that they can raise the prices of goods by reflecting such costs, helping boost profitability,” said the BOK. “The outlook index rose as factory operations usually increase in spring.”

The Federation of Korean Industries (FKI), the nation’s largest industry lobby in Korea, announced on the same day that the BSI of the country’s 600 largest firms registered 113.5, up from 98 a month earlier. Companies expect to see exports increase on the back of a global economic recovery.

“The improvement in the businesses’ sentiment is attributed to hopes for increased exports on the strengthening recovery of the global economy on the outside and an increase of sales on the inside due to seasonal factors, such as the beginning of a new school year,” the FKI said in a press release.

By industrial sector, the business sentiment of the service and manufacturing industries stayed well above 100, at 115.7 and 110.5, respectively. The index for the information-recreational services also took a sharp increase, from 86.7 to 137.5.