Despite a strong semiconductor cycle, supply chain anxiety stemming from the Middle East crisis has pushed South Korea's second-quarter manufacturing outlook slightly lower, a survey showed.
The Korea Chamber of Commerce and Industry (KCCI) said Thursday that the business survey index (BSI) for the second quarter of 2026 fell 1 point from the first quarter to 76. The reading has now remained below the benchmark level of 100 for 19 consecutive quarters since the third quarter of 2021.
A BSI reading above 100 means more companies view the current quarter's business conditions as better than the previous quarter, while a reading below 100 indicates the opposite.
By segment, the index for domestic-oriented companies rose 4 points quarter-on-quarter to 78. However, the index for export-oriented companies plunged 20 points to 70 as external risks including the Middle East crisis weighed on sentiment.
Among all surveyed industries, the semiconductor and cosmetics sectors posted readings above 100, signaling expectations of improved conditions in the second quarter. The semiconductor sector (118), buoyed by expanding global artificial intelligence infrastructure investment, maintained a positive outlook for the second consecutive quarter. The cosmetics sector (103) fell 18 points from the previous quarter but still showed a predominantly positive outlook.
In contrast, refining and petrochemicals (56) and steel (64) posted notably negative readings. The refining and petrochemicals sector, burdened by raw material supply concerns triggered by the Middle East crisis, recorded the steepest decline among all surveyed industries.
When asked about domestic and external risks most likely to affect first-half business performance, 70.2 percent of manufacturing firms cited "rising raw material and energy costs." That was followed by "geopolitical risks including wars" (29.8 percent), "increased exchange rate volatility" (27.6 percent), "sluggish consumer recovery" (19.1 percent), "weakening export demand" (13.9 percent), "financing and liquidity issues" (13.0 percent), and "tariff uncertainty" (12.4 percent).
Asked about the status of first-half investment plans originally set late last year or at the start of this year amid ongoing external risks such as the Middle East crisis, 61.1 percent of respondents said their plans were "proceeding as scheduled without changes." Only 3.8 percent said investment had "expanded beyond the original plan." However, 35.1 percent reported that investment had been "reduced or delayed compared to the original plan."
Companies that scaled back or delayed investment most frequently cited "deteriorating market conditions including demand" (26.9 percent) as the primary factor. That was followed by "rising production costs including energy and raw materials" (24.4 percent), "changes in the trade environment including tariffs and wars" (23.9 percent), and "worsening financing conditions" (19.9 percent).
"Despite the semiconductor boom, upward pressure on energy and raw material prices driven by trade uncertainty and the Middle East war is weighing on the manufacturing sector as a whole," said Kang Min-jae, head of economic policy at the KCCI. "As the government has activated an emergency economic response system in preparation for a prolonged crisis, the business community will also closely communicate to quickly relay difficulties on the ground and ensure effective countermeasures are put in place."