Still gloomy signs for the economy

The government role is important, but what can change the tide is stronger corporate competitiveness.

The headline inflation rate has come under 4 percent last month. The year-on-year gain of the consumer price index that went as high as 6.3 percent in July 2022 retreated to the 3 percent range for the first time in 14 months. However, prices are expected to soften in the latter half.

But household troubles are not over, as the debt delinquency rate has been rising due to strong inflation and high interest rates that have sharply weakened the disposable income power of the middle class.

The delinquency rate for credit card bills has exceeded 1 percent for all card issuers in the first quarter. The reading is dangerously rising towards the alarming 2 percent threshold. The average overdue rate in 79 savings banks and 25 big secondary lenders rose sharply to 5.1 percent and 10 percent, respectively. The collective delinquency rate is being pushed up due to the increase of debtors taking on more debt to cover for existing loans and their worsening financial conditions as a result of high interest rates.

Debtors who filed for debt restructuring and individual bankruptcy as they could not meet their debt obligations hit 76,000 in the first quarter, the highest quarterly record. New applicants for debt restructuring jumped 48 percent and others for individual bankruptcy rose 44 percent from the same period last year.

Debt in the non-banking sector is more worrisome. The outstanding corporate loan balance has surged 82.6 percent against the pre-Covid period, with their delinquency rate hitting 2.24 percent, the highest since 2016.

Business deterioration is aggravating corporate woes. The rate of operating margin fell to the 4 percent range. The 108 listed companies who reported preliminary first-quarter performance showed an average operating margin of 4.09 percent, the second lowest since the International Financial Reporting Standards were adopted in 2011. The biggest reason for the poor results is due to memory giants Samsung Electronics and SK hynic’s sluggish chip business. Still, even after counting out the two companies, the operating margin merely stopped at 6.07 percent.

Trade balance has been in the red for 14 straight months. Exports in April were off $8.2 billion from a year ago to stop at $49.6 billion. Of the fall, half owed to the plunge in chip export. Other industries are doing equally poor. E-commerce balance showed a deficit of over 1.3 trillion won ($972.7 million) in the first quarter. It is the first time online commerce has incurred a deficit of over 1 trillion won. In 2022, Korea’s per capita GDP fell behind Taiwan’s for the first time in 18 years. Inflation is not the end of Korea’s troubles. The government role is important, but what can change the tide is stronger corporate competitiveness.