South Korea’s semiconductor industry continues to benefit from the global artificial intelligence boom, but new data suggest that much of the country’s broader industrial economy is moving in the opposite direction. As renewed conflict in the Middle East drives up energy costs and adds uncertainty to global supply chains, business confidence across many of South Korea’s key manufacturing sectors is weakening again.
The latest survey points to a widening divide inside one of the world’s most export-dependent economies. While semiconductor manufacturers continue to ride strong global demand for AI infrastructure, energy-intensive industries such as petrochemicals, refining and machinery are facing mounting pressure from higher costs and a more uncertain business environment.
The Korea Enterprises Federation (KEF), one of South Korea’s largest business organizations, said its August Business Survey Index (BSI) fell to 89.9 among the country’s 600 largest companies by sales, down 8.1 points from the previous month. A reading below 100 indicates that more companies expect business conditions to deteriorate than improve. The index has now remained below that threshold for five consecutive months.
KEF said the decline reflected renewed geopolitical uncertainty following the escalation of conflict in the Middle East, which has increased concerns over energy prices, raw material costs and supply chain disruptions. The July business performance index also remained below 100 at 94.4, extending a streak of negative readings that has continued since early 2022.
The sharpest deterioration was recorded in petroleum refining and petrochemicals, one of South Korea’s core export industries. The sector’s BSI dropped to 57.7, its lowest level since February 2009 during the aftermath of the global financial crisis. According to KEF, prolonged pressure from higher feedstock and energy costs, combined with weaker ethylene margins and renewed supply chain uncertainty, has significantly darkened the industry’s outlook.
Other manufacturing sectors also reported weak expectations. Machinery, non-metallic materials, wood products and furniture, and automobiles all remained below the neutral 100 mark, suggesting that business confidence has weakened across much of the country’s industrial base.
Semiconductors stood out as the clear exception.
The electronics and telecommunications equipment sector, which includes Samsung Electronics, the world’s largest memory chip and smartphone maker, and SK hynix, one of the world’s leading memory chip manufacturers, posted a BSI of 118.8, making it the only major industry to report a strongly positive outlook. Seasonal demand also lifted sentiment in food and beverage companies as well as leisure and hospitality businesses during the summer vacation period.
The contrast extended beyond individual industries. Export expectations remained at the neutral 100 level for a third consecutive month, outperforming every other category in the survey. Financing conditions fell to their weakest level since January 2023, while domestic demand, profitability and employment all remained in negative territory.
Investment sentiment improved to 97.0, its highest reading since September 2022, although it remained below the expansion threshold. The increase reflected continued expectations for capital spending by export-oriented manufacturers, particularly semiconductor companies, rather than a broad-based improvement in corporate confidence.
The survey underscores how increasingly dependent South Korea’s economy has become on its semiconductor sector. Strong global demand tied to AI investment continues to support the country’s largest exporters, but the benefits have yet to spread across much of the broader manufacturing economy, where higher energy costs and geopolitical uncertainty continue to weigh on business confidence.
