Korean Business Sentiment Falls as Higher Costs Weigh on Manufacturers

South Korean business sentiment weakened in September as rising costs weighed on manufacturers, interrupting the strong improvement recorded a month earlier, according to a Bank of Korea survey released Tuesday.

The Composite Business Sentiment Index for all industries stood at 99.1, down 0.5 point from August. The index had reached 102 in August, its highest level since September 2022 and a sign that corporate confidence had recovered to its strongest level since the period following the COVID-19 pandemic.

A reading below 100 means pessimistic responses outnumber optimistic ones. September’s result therefore indicates that companies were slightly more negative than positive about overall business conditions, despite the relatively modest decline in the headline figure.

The sector breakdown showed a sharp divergence between manufacturers and nonmanufacturing companies. The manufacturing CBSI dropped to 99.5 from 103.8 in August, a decline of 4.3 points. The central bank attributed the broader deterioration largely to increased costs, which can compress margins and make businesses more cautious about production, investment and hiring.

By contrast, confidence among nonmanufacturing companies improved. Their index rose to 98.9 from 96.7, supported by better sentiment in areas including transportation and leisure. Although that reading remained below 100, the 2.2-point gain helped offset part of the decline in manufacturing.

The split suggests that conditions are not weakening uniformly across the economy. Service-related businesses are seeing some improvement, while producers are confronting greater pressure from their cost base. That distinction is important because manufacturers play a central role in South Korea’s export-oriented economy and can be particularly sensitive to changes in input prices, overseas demand and financial conditions.

Companies’ outlook for October was measured at 99.6, unchanged from the previous survey. The steady forward reading signals that businesses do not expect an immediate broad deterioration, but it also remains just below the level at which optimists would outnumber pessimists.

The September results leave overall sentiment close to neutral but weaker than August’s post-pandemic high. The next readings will show whether the manufacturing setback proves temporary or whether elevated costs continue to restrain confidence as companies prepare their plans for the final quarter of the year.