Nearly half of Korean companies opt for status quo in 2024: Survey

Downtown of Jongno-gu, Seoul [Photo by Yonhap]

Nearly five out of 10 companies in South Korea are expected to maintain their current businesses with no significant changes this year despite the projections that economic conditions will improve from last year, a survey showed Monday.

According to a survey conducted by the Korea Enterprises Federation (KEF) and Global Research Group in November and December 2023 of chief executive officers and other executives from 204 companies with 30 or more employees nationwide, 44 percent said that they will maintain the status quo for this year.

The survey also showed that 38.3 percent of the executives said they plan to tighten management while only 17.7 percent opted for expansionary management.

The number of respondents citing austerity rose by 16 percentage points from the previous year’s survey. Companies choosing tightened management were found to focus on overall cost reduction, while those opting for expansionary management were considering venturing into new businesses.

The largest proportion of respondents, or 48 percent, planned to continue their investment and hiring plans at the same level as 2023, according to the survey.

An earlier survey of the Business Survey Index (BSI) conducted by the Federation of Korean Industries (FKI) showed that the outlook for BSI in January 2024 fell 2.9 points from the previous month to 91.1.

A BSI reading above 100 indicates a more positive economic outlook than the previous month, while a reading below 100 indicates a negative outlook.

By industry, both manufacturing and non-manufacturing sectors were weak at 87 and 95.2, respectively. The manufacturing BSI has been below the benchmark for 22 consecutive months. The non-manufacturing BSI fell below the baseline again for the first time in a month.

The manufacturing sector, in particular, is expected to face challenges in the first quarter of 2024.

A survey by the Korea Chamber of Commerce and Industry (KCCI) involving 2,156 manufacturing companies nationwide revealed a BSI of 83 for the first quarter of 2024, down 1 point from the fourth quarter of 2023.

In terms of specific industries, positive outlooks were predominant in the pharmaceutical, cosmetics, and shipbuilding sectors, driven by factors such as novel drug development and the popularity of Korean cosmetics products.

On the other hand, steel (72) and non-metallic minerals (67) were characterized by an unfavorable outlook due to a slowdown in the construction industry and rising raw material prices.

The information technology (IT) sector remained below the benchmark, although there are expectations for a recovery in demand for some items. The automotive sector remained negative due to high interest rates and the impact of low-cost foreign electric vehicles.

Experts, in the meantime, projected economic growth of 2.1 percent for 2024 in line with major institutional forecasts, according to a survey conducted by the KCCI of 90 economic and business experts.

Experts emphasized the importance of risk management, identifying external risks such as prolonged U.S. monetary tightening, intensified global export competition, and China’s slow growth. Internal risks included deepening household debt, risks from the real estate sector, rising production and consumption prices, and a sluggish domestic economy.

“Exports will improve this year, primarily led by the semiconductor industry,” said Shin Kwan-ho, a professor at Korea University.

He emphasized the need to minimize risks, given the uncertain recovery of the Chinese economy and unclear improvements in global inflation and high-interest rate conditions.

“It is still unlikely that the Korean economy will return to a full recovery trajectory, as there is a high possibility of unexpected risks in addition to geopolitical uncertainties,” said Lee Bu-hyeong, a senior fellow at Hyundai Research Institute. “It is necessary to increase the transparency and predictability of policy-making so that economic entities can respond flexibly and stably to unexpected risks.”

The business community called for revitalizing consumption and investment and expanding growth potential through deregulation.

Kim Hyun-soo, chief of the KCCI’s economic policy team, said that as economic recovery is expected in the second half of 2024 based on the current outlook, challenges are projected to persist in the first half and that it is crucial to strengthen dynamism in the private sector not only through inflation management but also through policies that promote consumption and investment.

Labor-management relations were projected to become a stumbling block for corporate management in 2024.

According to a survey of 124 member companies conducted by the KEF, 62.3 percent of respondents expected labor-management relations to be unstable in 2024. Factors contributing to labor-management tension include increased political struggles in the labor sector and diverse demands from unions such as wage increases and extending retirement ages.

Jang Jung-woo, head of the labor-management cooperation department at the KEF, expressed concerns about political struggles in the labor sector ahead of the general elections.

He predicted that labor-management relations in 2024 would face challenges due to various demands from unions, including wage increases, retirement age extensions, and shorter working hours, and highlighted the potential increase in on-site labor-management tension.