More than half of Korea's top 100 firms expect little or no growth next year

[Graphics by Song Ji-yoon]

More than half of South Korea’s top 100 companies cannot expect any growth in profit in next year from this year as a majority expect global economy to normalize only after 2024 from the wrecks of a strong dollar, supply woes, and other negative trade conditions, a survey showed.

According to a survey conducted by Maeil Business Newspaper on chief financial officers of 100 major Korean companies on Tuesday, 14.6 percent projected revenue to fall next year from this year and 21.9 percent unchanged. Another 7.3 percent could not make any estimate.

They were more negative on income, with 23.9 percent predicting reduced operating profit next year from this year and 18.8 percent projecting stagnancy. Another 7.3 percent could not estimate.

In the manufacturing sector, the estimate for reduction in income made up 33.3 percent, and in non-manufacturing sector 16.7 percent.

In multiple questions for the risk factors for next year, 71 percent pointed to a global economic slump.

The Organization for Economic Cooperation and Development (OECD) cut outlook for the 2023 global economic growth by 0.6 percentage points from last estimate in June to 2.2 percent. International Monetary Fund (IMF) also lowered global economic outlook for next year to 2.9 percent from 3.6 percent.

OECD projects China’s economy to slow to a growth of 4.7 percent next year, which bodes badly for South Korea as the market is its largest export destination.

Rising interest rates was cited as a concern by 51 percent, followed by inflation (45 percent). The Bank of Korea is expected to continue with rate increases to match the aggressive tightening by the U.S., burdening the Korean Inc. with heavy debt.

A separate survey conducted recently by Federation of Korean Industries on CFOs of Korea’s top 1,000 manufacturing companies by sales showed more than three out of 10 companies falling under the marginal category unable to afford debt financing cost from earnings based on the base rate at 2.5 percent When the key rate goes up to 3 percent, six out of 10 would turn marginal.

When real wage value falls from strong inflation, consumer purchasing power would turn subdued.

The strong U.S. dollar is another factor concerning Korean businesses. A strong dollar can aid exports in price competitiveness in the short run, but it affects production cost due to higher commodity prices,

Companies also cited supply chain instability (32 percent), U.S.-China trade conflict and trade protectionism (23 percent), and geopolitical risks related to Ukraine and Taiwan (12 percent) as ongoing concerns.

According to a report released by BOK, 39.8 percent, or 2,144 out of Korea’s entire 5,381 import items, are vulnerable to supply chain instabilities. Nearly 70 percent of key minerals like copper, aluminum, and zinc on average are imported from China. There are also concerns about supply setback due to intensifying U.S.-China conflict.

More than 6 out of 10 companies expected the economy to rebound only after 2024, Maeil Business Newspaper’s survey showed, and 15.2 percent said the downturn would end only after 2025. Nearly 40 percent said the economy would stay weak at least until the end of next year.

[ⓒ Maeil Business Newspaper & mk.co.kr, All rights reserved]