Business sentiment ticks up, but underlying demand weakens

(Yonhap)

Business sentiment in South Korea edged higher in April, but the rebound was driven largely by inventory adjustments rather than a genuine recovery in demand, while weakening consumer confidence dragged on the broader economic outlook.

According to data released Monday by the Bank of Korea, the composite business sentiment index (CBSI) for all industries rose 0.8 points from the previous month to 94.9. The reading marks the highest level since July 2024, though it remains below the long-term average of 100, indicating a still-pessimistic view of the economy.

The increase was led primarily by manufacturers, whose CBSI climbed 2.0 points to 99.1. Gains were driven by declining inventories, which added 2.3 points to the index, along with modest improvements in business conditions and new orders. The non-manufacturing index rose 0.1 point to 92.1, supported by higher sales despite weaker profitability.

However, the underlying trend appears weaker when inventory effects are excluded. The Bank of Korea said the adjusted CBSI actually fell 0.1 point for all industries and 0.4 point for manufacturing, marking a second consecutive monthly decline.

“Part of the improvement reflects solid exports and higher selling prices, but the biggest factor was the drawdown of inventories as firms responded to supply disruptions,” said a BOK official.

Forward-looking indicators showed a similar pattern. The CBSI outlook for May rose 0.8 point to 93.9, the highest since August 2024. Yet when inventory factors are stripped out, the outlook declines by 0.2 point for all industries and 0.5 point for manufacturing.

Meanwhile, broader economic sentiment continued to deteriorate. The economic sentiment index (ESI), which combines business and consumer confidence, fell 2.3 points to 91.7 in April, extending its decline for a second straight month and hitting the lowest level since September 2025.

The central bank attributed the drop to worsening expectations for household income and spending, despite improved export outlooks in the manufacturing sector.

The survey was conducted from April 9 to 16, covering 3,524 companies nationwide, with responses from 3,205 firms, including 1,781 manufacturers and 1,424 non-manufacturers.