(Source: Unsplash)
By Aubrey Kim, New York Correspondent
— May 2025 CBSI and BSI Indicators with On-the-Ground Analysis
In May 2025, business sentiment among South Korean companies showed a slight improvement. According to the latest data from the Bank of Korea's Business Survey Index (BSI) and the Construction Business Survey Index (CBSI), positive signs such as increased new orders and reduced inventories were observed in some sectors. However, sluggish domestic demand and persistent economic uncertainty continue to hinder corporate management.
CBSI and BSI Show Signs of Improvement, but Still Below Threshold
The CBSI for manufacturing in the Gwangju-Jeonnam region rose to 93.8 in May, up 3.3 points from the previous month. Nationwide, the manufacturing CBSI also edged up to 94.7. While these figures represent an improvement, they still fall short of the benchmark level of 100. A CBSI reading above 100 indicates that more companies view business conditions as improved from the previous month, while a reading below 100 suggests the opposite. In short, sentiment is improving but remains largely negative.
The BSI outlook published by the Federation of Korean Industries (FKI) stood at 85.0 for May, a 3-point drop from April’s 88.0 and the fourth reading in the 80s this year. The manufacturing BSI hit 79.2—the lowest level since August 2020 during the initial COVID-19 shock. The non-manufacturing BSI also remained below the 100 mark at 90.8, continuing a five-month streak. The actual BSI performance index was 91.1, reflecting 40 consecutive months of weak performance.
Diverging Trends Across Sectors: Manufacturing vs. Non-Manufacturing
In the Gwangju-Jeonnam region, manufacturers cited weak domestic demand, declining exports, and economic uncertainty as major business challenges. A downturn in the petrochemical sector, rising inventories, and slowed production directly contributed to lower manufacturing sentiment. In contrast, non-manufacturing businesses saw a modest CBSI increase due to improved sales, though labor shortages, rising labor costs, and economic instability remain key burdens.
On a national scale, sectors such as automotive, machinery and equipment, and metal processing saw improved sentiment driven by strong export performance and upstream industry growth. For instance, higher demand for auto parts, increased orders for machinery and equipment due to shipbuilding sector strength, and more deliveries of construction materials contributed positively. Business sentiment improved slightly across both large corporations and SMEs, as well as export- and domestic-focused firms.
Structural and Cyclical Drivers of Weak Domestic Demand
The prolonged weakness in domestic demand reflects both cyclical and structural factors. Short-term challenges such as sustained high interest rates and inflation, heightened global and domestic uncertainty, and reduced investment are the main cyclical drivers. Structurally, demographic shifts such as population decline and aging are amplifying the downturn in consumption.
As of 2025, South Korea's population stands at 51.33 million, down by 500,000 from 2020. The working-age population (ages 15–64) continues to shrink, while the proportion of elderly citizens—who tend to spend less—is projected to rise from 20.3% in 2025 to 40.1% by 2050.
According to Statistics Korea, retail sales in March 2025 dropped 0.3% month-on-month, while service output and facility investment fell 0.3% and 0.9%, respectively. In Q1, private consumption declined by 0.1%, with facility and construction investment decreasing by 2.1% and 3.2%, respectively. These trends suggest that the slump in domestic demand is not merely cyclical but also driven by deeper structural issues.
On-the-Ground Perspectives: Corporate Challenges and Responses
Manufacturers continue to cite weak domestic demand, declining exports, and economic uncertainty as top business challenges. In the Gwangju-Jeonnam region, the decline in the petrochemical industry, rising inventories, and sluggish production were noted as key negative factors. Despite sales growth, the non-manufacturing sector still faces issues such as labor shortages, wage hikes, and persistent economic instability.
Rising minimum wages and labor shortages are placing further strain on small business owners and SMEs. Even modest wage hikes have become burdensome in the current economic climate, leading to reduced hiring and, in turn, lower production. Service sectors such as beauty salons, accommodations, and food services are experiencing worsening business conditions due to weaker consumer sentiment combined with higher labor costs.
Mid-sized enterprises have expressed concern that a second Trump administration in the U.S. may bring about heightened uncertainty for the Korean economy due to more protectionist policies and aggressive tariff measures. This could dampen corporate investment sentiment, worsen the trade balance, and increase exposure to risks associated with China.
Policy Implications and Outlook
The Korean government is expanding its policy approach to address the root causes of domestic demand weakness. It is moving beyond cyclical analysis to consider structural factors such as demographic decline and aging. Short-term measures being considered include front-loaded fiscal spending, support for vulnerable groups, and increased investment in social overhead capital (SOC). However, many experts stress the urgency of long-term solutions to address the structural decline in domestic consumption.
While business sentiment is showing signs of improvement, it remains below the baseline. Encouraging indicators such as new orders, inventory reductions, and sector-specific export gains are not yet enough to offset persistent challenges like weak domestic demand, economic uncertainty, labor shortages, and wage burdens.
Conclusion
Despite some positive signals in May 2025, South Korea’s corporate sector remains constrained by structural headwinds such as declining domestic demand and economic uncertainty. The compounding effects of demographic shifts, high interest rates, inflation, and global volatility are deepening the downturn. Without fundamental solutions, a full-scale rebound in business sentiment appears unlikely. Both policymakers and businesses must pursue not only short-term stimulus measures but also strategic, long-term structural reforms to address these complex challenges.
Copyright © The Value Chain Times. All rights reserved. Unauthorized reproduction, redistribution, and use for AI training are strictly prohibited.
[The Value Chain Times = Aubrey Kim, New York Correspondent]
By Aubrey Kim, New York Correspondent
— May 2025 CBSI and BSI Indicators with On-the-Ground Analysis
In May 2025, business sentiment among South Korean companies showed a slight improvement. According to the latest data from the Bank of Korea's Business Survey Index (BSI) and the Construction Business Survey Index (CBSI), positive signs such as increased new orders and reduced inventories were observed in some sectors. However, sluggish domestic demand and persistent economic uncertainty continue to hinder corporate management.
CBSI and BSI Show Signs of Improvement, but Still Below Threshold
The CBSI for manufacturing in the Gwangju-Jeonnam region rose to 93.8 in May, up 3.3 points from the previous month. Nationwide, the manufacturing CBSI also edged up to 94.7. While these figures represent an improvement, they still fall short of the benchmark level of 100. A CBSI reading above 100 indicates that more companies view business conditions as improved from the previous month, while a reading below 100 suggests the opposite. In short, sentiment is improving but remains largely negative.
The BSI outlook published by the Federation of Korean Industries (FKI) stood at 85.0 for May, a 3-point drop from April’s 88.0 and the fourth reading in the 80s this year. The manufacturing BSI hit 79.2—the lowest level since August 2020 during the initial COVID-19 shock. The non-manufacturing BSI also remained below the 100 mark at 90.8, continuing a five-month streak. The actual BSI performance index was 91.1, reflecting 40 consecutive months of weak performance.
Diverging Trends Across Sectors: Manufacturing vs. Non-Manufacturing
In the Gwangju-Jeonnam region, manufacturers cited weak domestic demand, declining exports, and economic uncertainty as major business challenges. A downturn in the petrochemical sector, rising inventories, and slowed production directly contributed to lower manufacturing sentiment. In contrast, non-manufacturing businesses saw a modest CBSI increase due to improved sales, though labor shortages, rising labor costs, and economic instability remain key burdens.
On a national scale, sectors such as automotive, machinery and equipment, and metal processing saw improved sentiment driven by strong export performance and upstream industry growth. For instance, higher demand for auto parts, increased orders for machinery and equipment due to shipbuilding sector strength, and more deliveries of construction materials contributed positively. Business sentiment improved slightly across both large corporations and SMEs, as well as export- and domestic-focused firms.
Structural and Cyclical Drivers of Weak Domestic Demand
The prolonged weakness in domestic demand reflects both cyclical and structural factors. Short-term challenges such as sustained high interest rates and inflation, heightened global and domestic uncertainty, and reduced investment are the main cyclical drivers. Structurally, demographic shifts such as population decline and aging are amplifying the downturn in consumption.
As of 2025, South Korea's population stands at 51.33 million, down by 500,000 from 2020. The working-age population (ages 15–64) continues to shrink, while the proportion of elderly citizens—who tend to spend less—is projected to rise from 20.3% in 2025 to 40.1% by 2050.
According to Statistics Korea, retail sales in March 2025 dropped 0.3% month-on-month, while service output and facility investment fell 0.3% and 0.9%, respectively. In Q1, private consumption declined by 0.1%, with facility and construction investment decreasing by 2.1% and 3.2%, respectively. These trends suggest that the slump in domestic demand is not merely cyclical but also driven by deeper structural issues.
On-the-Ground Perspectives: Corporate Challenges and Responses
Manufacturers continue to cite weak domestic demand, declining exports, and economic uncertainty as top business challenges. In the Gwangju-Jeonnam region, the decline in the petrochemical industry, rising inventories, and sluggish production were noted as key negative factors. Despite sales growth, the non-manufacturing sector still faces issues such as labor shortages, wage hikes, and persistent economic instability.
Rising minimum wages and labor shortages are placing further strain on small business owners and SMEs. Even modest wage hikes have become burdensome in the current economic climate, leading to reduced hiring and, in turn, lower production. Service sectors such as beauty salons, accommodations, and food services are experiencing worsening business conditions due to weaker consumer sentiment combined with higher labor costs.
Mid-sized enterprises have expressed concern that a second Trump administration in the U.S. may bring about heightened uncertainty for the Korean economy due to more protectionist policies and aggressive tariff measures. This could dampen corporate investment sentiment, worsen the trade balance, and increase exposure to risks associated with China.
Policy Implications and Outlook
The Korean government is expanding its policy approach to address the root causes of domestic demand weakness. It is moving beyond cyclical analysis to consider structural factors such as demographic decline and aging. Short-term measures being considered include front-loaded fiscal spending, support for vulnerable groups, and increased investment in social overhead capital (SOC). However, many experts stress the urgency of long-term solutions to address the structural decline in domestic consumption.
While business sentiment is showing signs of improvement, it remains below the baseline. Encouraging indicators such as new orders, inventory reductions, and sector-specific export gains are not yet enough to offset persistent challenges like weak domestic demand, economic uncertainty, labor shortages, and wage burdens.
Conclusion
Despite some positive signals in May 2025, South Korea’s corporate sector remains constrained by structural headwinds such as declining domestic demand and economic uncertainty. The compounding effects of demographic shifts, high interest rates, inflation, and global volatility are deepening the downturn. Without fundamental solutions, a full-scale rebound in business sentiment appears unlikely. Both policymakers and businesses must pursue not only short-term stimulus measures but also strategic, long-term structural reforms to address these complex challenges.
Copyright © The Value Chain Times. All rights reserved. Unauthorized reproduction, redistribution, and use for AI training are strictly prohibited.
[The Value Chain Times = Aubrey Kim, New York Correspondent]