South Korea's business sentiment continued to improve on recovering demand in the non-manufacturing business sector, a local think tank said Wednesday.

The business survey index (BSI) of the country's top 600 companies by sales reached 107.7 for next month, up 1.7 points from April, the Korea Economic Research Institute (KERI) said in a statement.

The index stayed above 100 for the third straight month after its March reading exceeded 100 for the first time in 34 months, it said.

A reading above 100 means optimists outnumber pessimists, while a figure below the benchmark means the opposite.

"Consumer sentiment is improving due to pent-up demand amid the prolonged COVID-19 pandemic but it may end up a temporary rebound in consumption," a KERI official said.

But there are some downside factors, such as the possibility of the fourth wave of mass infections and a global chip shortage, which is affecting vehicle production, he said.

KERI said 428 out of the 600 companies responded to the survey, which was taken from April 15-22. (Yonhap)