South Korean companies turned more downbeat about business conditions for the first time in three months, as fewer working days, a strike at a carmaker and fallout from the Middle East conflict combined to weigh on manufacturing sentiment.
The Composite Business Sentiment Index (CBSI) for all industries stood at 99.1 in September, down 0.5 point from the previous month, according to the Bank of Korea's September 2026 business survey and Economic Sentiment Index (ESI) released on the 29th. It was the first decline in three months. The central bank said the overall upward trend remains intact. The outlook CBSI for October was 99.6, unchanged from the previous month.
The CBSI is a sentiment gauge built from five manufacturing and four non-manufacturing sub-indexes. Its long-term average from January 2003 through December 2025 is set at 100.
The manufacturing CBSI came in at 99.5, tumbling 4.3 points from a month earlier. Product inventories (-1.8 points), new orders (-1.0 point) and production (-0.6 point) led the decline.
The Bank of Korea said the drop was difficult to attribute to any single factor. A partial strike at a carmaker that ran from late August into early September disrupted deliveries by small and mid-sized parts suppliers and pushed up their inventories, the bank said, with knock-on effects on upstream industries such as rubber and plastics. Fewer working days during the Chuseok holiday and shipping disruptions stemming from the Middle East conflict also factored in.
While product inventories weighed most heavily on the manufacturing CBSI, the central bank said the inventory buildup cannot be read purely as a sign of weak demand. Some makers of electronics, video and communications equipment were found to have stockpiled goods in advance in anticipation of stronger demand after Chuseok.
By sector, automobiles stood out for their weakness. Business conditions fell 10 points and production dropped 22 points, as sluggish exports and domestic sales were compounded by lower utilization rates from the strike and the holiday. In chemicals and chemical products, production and new orders fell 12 points and 9 points, respectively, hit by shipping disruptions from the Middle East conflict, restructuring in the petrochemical industry and rising raw material prices. In electronics, video and communications equipment, new orders fell 7 points while product inventories rose 7 points.
The outlook CBSI for manufacturing in October was 101.1, down 1.4 points from the previous month, with weakness expected to persist in chemicals and chemical products and in primary metals. Still, the projected decline was smaller than the drop recorded in September. For automobile production, the reading improved to minus 10 points in the October outlook from minus 22 points in the September results, while the rise in product inventories for electronics, video and communications equipment narrowed to 1 point from 7 points.
The non-manufacturing CBSI, by contrast, rose 2.2 points from the previous month to 98.9, the highest level since September 2023, when it stood at 99.6. Funding conditions and business conditions rose 1.0 point and 0.7 point, respectively, leading the gain. The Chuseok holiday boost and increased outdoor activity were cited as the main drivers.
In wholesale and retail, business conditions rose 10 points, helped by stronger demand for food, beverages and pharmaceuticals amid the holiday rush and the change of season. In arts, sports and recreation, business conditions jumped 18 points and profitability surged 21 points, as the holiday and cooler weather drew more visitors to sports venues and amusement parks. In professional, scientific and technical services, the gain reflected more orders at architectural and design firms and at semiconductor-related engineering companies.
The outlook CBSI for non-manufacturing in October rose 1.0 point to 98.6, with improvement expected mainly in wholesale and retail, construction and real estate.
The Economic Sentiment Index, which combines business and consumer sentiment, rose 0.5 point from the previous month to 99.9, lifted by improving consumer sentiment in areas such as expected household income and planned spending. The cyclical component, which strips out seasonal and irregular factors, rose 0.7 point to 98.3.
Weak domestic demand remained the most frequently cited business difficulty. Among manufacturers, the top answers were weak domestic demand (21.2%), rising raw material prices (20.9%) and economic uncertainty (16.7%). The share citing exchange rates rose 3.0 percentage points from the previous month, and the share citing weak domestic demand rose 2.2 percentage points.
Among non-manufacturers, the order was weak domestic demand (18.8%), economic uncertainty (16.6%) and labor shortages and rising labor costs (14.5%).
The survey covered 3,524 incorporated companies nationwide and was conducted from Sept. 10 to 17. A total of 3,163 companies responded, for a response rate of 89.8%.
