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Photo = Yonhap news |
[Alpha Biz= Kim Jisun] Three out of ten major South Korean corporations reported a deterioration in their financial conditions compared to last year, according to a recent survey. On March 6, the Korea Economic Association (KEF) revealed that 31% of the top 1,000 companies (excluding state-owned and financial firms) responded that their financial status had worsened. Only 11% of respondents reported an improvement. The survey, conducted by Mono Research on behalf of KEF, was carried out between February 12 and 18.
By industry, the sectors most affected by worsening financial conditions included construction and civil engineering (50%), steel and metal (45.5%), and petrochemicals (33.3%). Companies cited the depreciation of the Korean won (24.3%), rising costs of raw materials and labor (23%), and high interest rates on loans (17.7%) as the primary factors negatively impacting their financial health.
Corporate demand for funds is expected to rise this year, with 36% of companies anticipating increased financial needs, compared to only 11% expecting a decrease. The primary areas where funds are needed include raw materials and component procurement (39.7%), facility investment (21.3%), debt repayment (14.3%), and labor and management costs (14%). Alarmingly, 20% of respondents indicated that their operating profits were insufficient to cover interest expenses.
As economic policy uncertainty reaches its highest level in five years, concerns over a significant decline in capital investment in the first half of 2024 are mounting. According to a report by the Sustainable Growth Initiative (SGI) of the Korea Chamber of Commerce and Industry, South Korea’s Economic Policy Uncertainty Index soared to 365.14 in December 2023—3.4 times higher than a year earlier. The previous peak was recorded in August 2019 (538.18) amid the South Korea-Japan trade dispute.
The index, developed by Professor Scott R. Baker of Northwestern University, measures the frequency of economic, policy, and uncertainty-related terms in major media outlets. A 10-point increase in the index correlates with an 8.7% decline in facility investment approximately six months later. Given that uncertainty has peaked within the past 60 months, the report predicts a significant contraction in capital investment, which could persist until economic stability is restored.
Concerns over an economic crisis have also surfaced. A January survey by the Korea Employers Federation (KEF) of 508 companies with over 50 employees found that 96.9% anticipated an economic crisis this year. Among them, 22.8% warned that the crisis could be more severe than the 1997 IMF financial crisis.
Political instability in South Korea is also expected to have negative economic repercussions. The top concerns cited by respondents included increased exchange rate volatility weakening export competitiveness (47.2%), dampened consumer sentiment and sluggish domestic demand (37.8%), and heightened uncertainty discouraging investment (26%).
With economic and political uncertainties compounding financial difficulties, South Korean businesses are bracing for a challenging year ahead.
AlphaBIZ Kim Jisun(stockmk2020@alphabiz.co.kr)
