South Korea's business sentiment widens gap between large firms and SMEs

South Korea's business sentiment index (CBSI) climbed for the second straight month in May, reaching 98.9, an increase of 4.0 points from the previous month. This upward trend, however, masks a growing disparity between large corporations and small and medium-sized enterprises (SMEs).

The manufacturing sector's sentiment index rose 1.7 points to 100.8, surpassing the benchmark of 100 for the first time in 3 years and 9 months. The non-manufacturing sector also saw a significant improvement, with its index jumping 5.4 points to 97.5. According to the Bank of Korea, these gains were largely attributed to robust exports of IT products, such as semiconductors, despite ongoing geopolitical tensions in the Middle East. The non-manufacturing sector's improvement was bolstered by increased cargo volume and freight rates in the foreign shipping industry, as well as expanded domestic travel during the early May holidays.

“

This is mainly due to the favorable exports of IT products such as semiconductors, despite the continued Middle East war.

In stark contrast, the sentiment index for SMEs fell 0.6 points to 96.2 in May, continuing a downward trend after a slight rebound in March. This decline contrasts sharply with the index for large enterprises, which rose to 103.4 in May after crossing the 100 mark in April. This divergence highlights a K-shaped economic recovery, where large, export-focused companies are thriving, while SMEs grapple with challenges. The Bank of Korea suggested that SMEs' efforts to increase inventory in anticipation of rising raw material costs may also be contributing to their subdued sentiment.

“

It seems to be influenced by SMEs increasing their inventory in preparation for rising raw material costs.