Value context and insight. lkm@koreatimes.co.kr
Japan trade feud dampens business confidence
By Lee Kyung-min
By Lee Kyung-min
Business confidence has plunged to a six-month low following escalating Korea-Japan trade tensions compounded by the prolonged economic slowdown, a central bank report showed Thursday.
According to the Bank of Korea (BOK), the Business Survey Index (BSI) for all industrial sectors stood at 69 in August, down 4 points from a month earlier.
The figure is the lowest in six months since February. A reading below 100 means pessimists outnumber optimists.
By industry, the index for manufacturers fell by 5 points to 68 from a month earlier, a greater loss compared to the non-manufacturing sector that saw a 2-point decline in the same period.
The index for the electronics sector comprising the semiconductor business plunged by 11 points to 72 in August from the prior month's 83, driving the downward trend in the manufacturing industry.
This is taken as a strong indication that Asia's fourth-largest economy has begun to feel the pinch following Japan's export restrictions on key materials needed for the production of semiconductors and LCD displays.
“While we cannot say with certainty that the drop in the indices was caused directly by the trade feud with Japan, it had to play a role to a degree, coupled with the now drawn-out dispute involving the U.S. and China,” a BOK official said.
“The competition became fierce among the small and mid-sized firms due to fast-softening demand.”
The automotive sector recorded an 8-point increase from a month earlier, but it failed to offset the weakness in the semiconductor industry, once the key driver of the country's export growth.
Meanwhile, the country's Economic Sentiment Indicator (ESI), the combination of BSI and Consumer Sentiment Index (CSI), hit its lowest point in about a decade.
The ESI stood at 88.4, down 0.8 points from August. It was the lowest level since November 2012 when the figure was 87.9.
The economy will take a turn for the worse as the overall economic conditions will deteriorate further, making the country more vulnerable to external shocks, according to Yun Chang-hyun, an economist at the University of Seoul.
“You are more likely to catch a cold easily when you are sick. The economy has been in bad shape due to the U.S.-China trade feud and the fresh Korea-Japan feud is hitting the country with a force felt far greater than it otherwise would have,” he said.
“The situation will become bleaker as indicated by the economic cycle which shows the economy peaked in 2017 between June and September. The country will see its economic conditions hitting new lows again and again in the coming months.”