Recession Begins to be Felt throughout Economy

Workers at Telson Electronics Co. in North Choongcheong Province are often grimacing with worries these days.

Their factory, which has once run a two-or-three shift platform to turn out mobile phones for China and Latin America, now runs on an eight-hour single shift schedule after filing for receivership with the court late last month. The company could not buy components as it could not cash promissory notes. The factory began to run at 30-40 percent of capacity. Layoff is in sight now.

“Profitability at not just Telson, but also at all mid-range mobile phone manufacturers, fell as Chinese knockdowns hit the market massively,” said a person close to Telson.

A continuous fall in domestic demand has begun to take its toll on the production of automobiles. National Statistical Office said automobile exports fell by 14.6 percent in June compared to a month earlier.

“Slow local demand is putting upward pressure on inventory,” said an executive at Hyundai Motors. “To wind down inventory, we are betting on exports. However, this quantitative approach is hitting a snag.”

LG Catex Oil, where trade unionists are on strike, ran at 82 percent of capacity in July, down from 95.5 percent during the same period of last year.

The recession is being felt extensively through the industry and market. Not just non-manufacturing small and midsized companies which traditionally cater to local markets, but also manufacturers and large companies, which have been leading the economy with booming exports, began to mutter about slow business.

In “The Results of Survey on Business” it announced on August 3, the Bank of Korea put the business survey index at 70 for July, down eight points compared to 78 in June. The July BSI is an 11-month low since August of last year when the index was 72. If the BSI is higher than its benchmark of 100, more companies feel optimistic about their business. When it falls below 100, then more companies feel pessimistic.

In the manufacturing sector, exporters’ index fell 11 points to 74 in July from 85 in June. This is a 10-month low since September of last year when it was 73. During the same month, the index at companies gearing toward to the local market fell to 69 from 75: a sign showing that exporters are losing their steam rapidly. The BSI at small and midsized companies, which have recently performed better than large companies, fell to 77 from 82, increasing concerns about the overall economy.

When the real estate market went down, it went down along with the construction industry. The constructors’ BSI fell 54 in July from 69 in June. This is a 40-month low since the first quarter of 2001.

New house building has effectively been brought to an end, setting a tone for restructuring and layoff. A mid-range contractor has stopped bidding for apartment construction contracts and decided to lay off half of the approximately 20 employees who are handling bidding issues.

“Some contractors will exit the market by year-end,” said the contractor. “Unlike civil engineering firms, small and midsized house contractors will go bust.”

“The report finds that even the companies which did not see a serious fall in sales have become very pessimistic,” said Kim Cheol, the director of the BOK’s statistics department. “This is because unpredictable economic risks such as rising oil prices and concerns over management-labor relations have dwindled business confidence.”