The outlook for manufacturing in South Korea has shown signs of recovery, as the business sentiment index for both export and domestic companies increased for the first time in five quarters. This positive trend is particularly evident in sectors such as semiconductors and cosmetics, known for their strong export performance. However, challenges remain, with a significant number of manufacturers expressing concerns about achieving their profitability targets for the year.
According to a survey conducted by the Korea Chamber of Commerce and Industry (KCCI) of 2,413 manufacturing firms, the business sentiment index for Q4 2026 increased by 6 points from the previous quarter, reaching 86. The export firms’ index rose to 91, bolstered by robust demand in key sectors like semiconductors and cosmetics. Domestic firms also benefited from a stabilization of the exchange rate and a drop in import raw material costs, resulting in a 7-point increase to 85, marking the first simultaneous increase for both export and domestic companies in five quarters.
Prospects for improvement in the next quarter were also optimistic across various sectors. In Q4, five sectors, including semiconductors, cosmetics, medical precision, shipbuilding, and pharmaceuticals, reported sentiments exceeding the baseline index of 100. Notably, semiconductors posted a remarkable index of 139, representing the highest recorded figure since tracking began, maintaining a figure above 100 for four consecutive quarters.
The cosmetics industry specifically saw its index rise to 120, while medical precision increased to 108, with respective increases of 20 points and 28 points compared to the previous quarter. Additionally, the shipbuilding sector, benefitting from growing orders for high-value products, recorded an index of 103, and the pharmaceuticals sector, which has seen increased exports of biosimilars, registered an index of 102, reflecting a more positive sentiment compared to the previous quarter.
Conversely, the non-metallic minerals sector recorded the lowest index among the surveyed industries at 88, attributed to declines in construction demand during the previous hot season and monsoon. However, it experienced a 27-point rise, aided by the stabilization of import raw material prices. The electronics and communications sector saw a drop of 13 points to an index of 80, burdened by increased costs of raw materials and logistics.
Forecasts indicate that 60.4% of companies expect to fall short of their operational profit targets for the year, with only 31.7% anticipating target achievement. The combined outlook for exceeding targets is merely 7.9%. The primary challenges identified by firms aiming to meet their profit targets include rising production costs related to raw materials and energy (43.2%), worsened sales and order conditions (24.9%), and increasing labor costs and difficulties in securing personnel (11.7%).
Kang Min-jae, head of the economic policy team at KCCI, noted that while the sentiment index has risen for two consecutive quarters due to positive trends in some key sectors and improved confidence among export and domestic firms, a significant number of companies still face challenges in meeting profitability goals. He emphasized the need for policy support to stabilize supply of raw materials and alleviate energy cost burdens to improve business conditions.
