Korean companies shunned investments as the economy struggled to find new sources of growth amid a downturn in exports and weak domestic demand last year, latest data showed Sunday.
The country’s corporate investment in its gross domestic product fell to a 39-year low in 2015 as companies hunkered down due to the global slowdown and intensifying competition from Chinese firms.
Bank of Korea (Yonhap)
Gross fixed capital formation -- measure used as a proxy for investment -- accounted for 29.1 percent of GDP, down 0.1 percentage point from a year earlier, according to data compiled by Statistics Korea and the Bank of Korea.
The gauge has been skidding since 2008 when it stood at 31.4 percent.
Businesses have been shelving their investment plans as exports continue to contract over the past 15 months, coupling with increase in their inventories.
Another data shows that companies opted to hoard cash rather than invest in new plants or hiring.
The total amount of corporate funds deposited at local banks came to 348 trillion won ($303 billion) at the end of 2015, up 8.3 percent from a year earlier.
The export-oriented economy is in need of bolstering domestic consumption to cushion the drop in exports which dragged overall growth. The economy expanded 2.6 percent in 2015 from a year earlier, the slowest pace since 2012, according to BOK’s report in March.
But soaring household debt, fueled by a series of government-led stimulus programs and the rapidly aging society lead consumers to tighten their belts.
“Korea could follow Japan’s so-called ‘lost twenty years’ if it does not improve its economic fundamentals through regulation and structural revamps. The government needs to focus on sectors that promise long-term growth such as start-ups and R&D,” said Cho Jang-ok, an economics professor at Sogang University.
Private consumption took up 49.5 percent of GDP last year, marking the lowest since 1998, when the figure tumbled to 48.3 percent in the midst of the Asian financial crisis.
The combination of factors has driven the economy into a vicious cycle, experts said, while stressing on the need for structural changes.
“In order to increase income, job creation measures to boost women’s participation in economic activity is needed as well as policies that encourage consumption such as tax cuts,” said Hong Jun-pyo, a research fellow at Hyundai Research Institute.
By Park Han-na (
hnpark@heraldcorp.com)