February 25, 2020 / 9:03 PM / a month ago

S.Korea's business sentiment slumps even before virus crisis erupts

SEOUL, Feb 26 (Reuters) - South Korea suffered its worst fall in business sentiment in nearly 17 years due to the fast-spreading coronavirus, according to a central bank survey taken days before South Korea became the country with the largest number of cases outside China.

The business sentiment index (BSI) for March was compiled from a survey of 3,242 corporate enterprises between Feb. 11-18, just before the health scare became a full-blown emergency following an outbreak of the coronavirus in Daegu, the country’s fourth-largest city.

Published by the Bank of Korea on Wednesday, the manufacturing BSI for March dipped to 66 on a seasonally adjusted basis from 79 for February, its biggest monthly decline since April 2003, as firms fretted over the potential loss of business due to the epidemic in neighbouring China, South Korea’s biggest trading partner.

Since late last week, worries over the disease’s spread turned closer to home, with the government reporting 84 new cases of the virus on Tuesday, bringing the national tally to 977 and a total of 10 deaths.

The latest index reading was the lowest since March 2016 when the index stood at 63 and was far below 100, meaning the number of companies expecting business conditions to deteriorate outweighed those seeing an improvement.

Bank of Korea is expected to cut its benchmark interest rate to a record low of 1.00% at a policy meeting on Thursday to counter the economic impact from the virus. It would be the third reduction in seven months.

The non-manufacturing BSI, including the service sector which is expected to be hit hard by the virus, also fell to 66 for March, the lowest since April 2009 and from 77 for February. The monthly drop was the sharpest since November 2008.

“Sluggish domestic demand due to the virus spreading was the main factor pulling down business confidence for non-manufacturing businesses, while manufacturers’ business confidence plunged due to a slump in exports of chips and electronic products to China and the disruption of global supply chains,” a central bank official told Reuters. (Reporting by Joori Roh; Editing by Simon Cameron-Moore)

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