[Korea Federation of SMEs]
[Korea Federation of SMEs]

Share of SMEs expecting improvement rises to 12.8%, up 5.4 percentage points

Rising raw material costs top list of business difficulties at 27.6%

Calls grow for tax relief and financial support

South Korea's small and medium-sized enterprises expect business conditions in the second half of this year to improve modestly from the first half, a new survey shows. However, domestic and external uncertainties — including raw material prices and sluggish consumer demand — remain significant, and whether the cautious optimism signals a genuine recovery remains to be seen.

The Korea Federation of SMEs on Tuesday released results of its "SME Management Difficulties and Second-Half 2026 Business Outlook Survey," conducted July 1 to 7 among 500 small and medium-sized enterprises, excluding micro-businesses.

Among respondents, 37.0 percent said they expect overall business conditions to worsen in the second half compared to the first — down 11.4 percentage points from 48.4 percent in the first-half survey. The share expecting improvement rose to 12.8 percent, up from 5.4 percent in the first half. Pessimists still outnumber optimists, but by a narrower margin than before.

Improvement was also visible in the details. The share of respondents expecting better sales, operating profit and cash flow all increased from first-half levels. Factory operation rates saw a slight dip in "improvement" responses, but the share rating conditions as "normal" rose sharply to 72.4 percent, suggesting a broader sense of stability on the factory floor. For staffing, inventory and equipment, roughly 80 percent of respondents rated levels as adequate.

The main business difficulties were largely unchanged. Domestically, "rising raw material costs" topped the list at 27.6 percent, followed by "weak domestic demand" (18.5 percent), "rising labor costs" (14.5 percent) and "labor shortages" (8.5 percent). On the external side, "rising overseas raw material costs" led at 23.6 percent, followed by "increased exchange rate volatility" (16.9 percent), "higher logistics costs" (11.0 percent) and "geopolitical instability" (9.3 percent).

When asked about their top management priority, SMEs ranked "managing business risks" — including exchange rate and tariff risks — first at 28.2 percent. That marks a shift from last year's survey, in which "strengthening internal management" held the top spot, reflecting a rise in the priority given to managing external variables. "Retaining and developing key talent" came second at 24.2 percent, followed by "strengthening internal management" (23.8 percent) and "external growth" (10.0 percent).

The policy support SMEs said they needed most was "easing the tax burden" at 19.9 percent, followed by "financial support" (18.8 percent), "resolving labor shortages" (15.0 percent) and "stabilizing raw material and logistics supply" (13.2 percent). Both tax relief and financial support ranked near the top in last year's survey as well, underscoring that cash-flow pressures have persisted into another year.

Kim Hui-jung, head of the Korea Federation of SMEs' economic policy division, said SMEs expect a slight improvement in second-half conditions compared to the first half, but domestic and external uncertainties — including raw material prices and weak consumer demand — remain substantial. He called for urgent policy action to ease the management burden through tax relief and financial support, while also addressing sluggish domestic demand and managing external volatility.


hong@heraldcorp.com