According to Statistics Korea, three major engines for economic growth posted simultaneous slumps in July, raising uncertainty over the third-quarter gross domestic product.
The three sectors -- industrial output, private consumption and corporate investment in facilities -- were in decline. Even though seasonal vacancies during the summer should be taken into consideration, the sharp drop in corporate facilities investment is especially worrying.
Local businesses’ investment in facilities plunged 11.6 percent in July compared to the previous month, which marked the sharpest fall since January 2003. Lackluster corporate investment frequently reflects businesses’ skeptical outlook on economic conditions in the coming months, which is linked to a wait-and-see position under tight management.
Their passive approach to investment could possibly aggravate the unfavorable situation that many conglomerates are suffering from a protracted slump in exports.
An earlier poll of 30 major conglomerates by the Federation of Korean Industries showed that 80 percent of these companies expect to see their overall business conditions become worse this year. More than half said the economy will not start to recover until 2018.
The sagging export segment was cited as the most serious challenge, while falling profitability, volatile financial markets and weak consumption followed.
Some businesses claim the economy has already hit rock bottom. However, it is undeniable that both external and homegrown uncertainties are casting a dark shadow over the local market.
First, spiraling crude oil prices are causing more businesses to be hesitant about active investment in facilities due to heavier costs.
Second, the US Federal Reserve’s hawkish monetary stance is a lingering threat to the Korean economy, which is reducing the likelihood that the Bank of Korea could conduct another rate cut to boost the economy by fanning corporate investment.
Third, the heavily debt-saddled household sector is frustrating enterprises that center on domestic demand. Private consumption is recovering more slowly than expected due to a reduced capacity to spend.
Fourth, the ongoing restructuring process among some conglomerates in the aftermath of leading shipbuilding and shipping firms’ insolvency is hampering corporate cash flows.
Though exports showed signs of bouncing back in August, a breakthrough is still urgent for the corporate sector. The government is pinning high hopes on the extra budget as a stimulus package. The bill, amounting to 11 trillion won ($9.8 billion), has been pending at the National Assembly for more than a month.
