Delta variant saps business sentiment in Korea
Rising numbers of COVID-19 cases and the continued spread of the Delta variant rattled business sentiment in July, with the country’s business survey index (BSI), which measures how companies view surrounding conditions, turning red for the first time since February.
On Friday, the Bank of Korea (BOK) said that BSI in July stood at 87, decreasing 1 point from June. This is the first month-on-month drop in five months.
The BSI is considered as a barometer for judging how private companies feel about current business conditions and outlook, as the survey is based on opinions from the country’s core industries. A BSI reading below 100 shows pessimists outnumber optimists and vice-versa if the index exceeds 100.
The latest poll was conducted from July 15 to 22 and targeted 3,255 companies. Out of the total, 2,807 responded.
“The deterioration in sentiment in July coincides with the most recent surge in COVID-19 cases and the rising prices of raw materials. Unlike big companies, which have fared well thanks to increased exports of semiconductors and vehicles, the business sentiments of small and medium-sized enterprises (SMEs), as well as domestically-focused companies, have worsened,” Kim Dae-jin, a team leader at the BOK’s economic indices bureau, said.
The Korean government is trying its best to continue its massive vaccination campaign as planned, despite concerns over a shortage of vaccines. But if worries over the Delta variant continue to mount, more consumers will stay away from activities they deem as being too risky.
This situation, according to economists, will further weigh on service-related businesses such as restaurants, hotels and airlines, potentially undermining the recovery of the local service sector and even of the Korean economy as a whole. In line with such worries, the BSI of non-manufacturing companies in July deteriorated 2 points to 79.
By detailed indices, manufacturers’ business sentiment fell 1 point to 97 this month. The BSI among big companies remained unchanged at 107, though that of SMEs dropped 4 points to 85.
“Aside from exporters and top-tier manufacturers, the government is asked to provide a high level of assistance packages to SMEs and non-manufacturers, as the continued spike in new COVID-19 cases coincides with the possible downward shift in business sentiment. Consumers are truly worried about the estimated impact of the Delta variant, as the spread will have a negative impact on the country’s economic recovery,” Ha Joon-Kyung, an economics professor at Seoul’s Hanyang University, said.
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