Some of Korea's biggest companies are beginning to operate under the emergency system as a serious economic downturn is expected from next year, which is only 10-odd days away. The country's exports for the coming year are likely to remain sluggish as consumption in the E.U., China and now the U.S. began to shrink. In the midst of high inflation and soaring benchmark interest rate both of which have diminished household disposable incomes, domestic spending is also beginning to freeze, which has been supporting the nation's traditionally export-driven economy.
Out of Korea's top 500 companies with largest sales revenue, some 200 firms reported their operation capacity at 78.4% on average, a 2.1-percentage-point decrease from a year ago. Such manufacturing decline was triggered by increasing product inventory which was in turn caused by a drop in post-COVID-19 spending resurge in the industrialized economies. The management of the TV and home appliances division in Samsung Electronics reportedly concluded in a recent marathon meeting that they should channel all their energy in the first quarter of next year and find solutions to tackle the economic situation or it would continue to worsen all year round.
The situation is even worse for small-to-medium-sized enterprises (SMEs). Interest expenses for listed SMEs in the manufacturing sector have jumped by 20% year-on-year. Many of them are considering shutting down as financing becomes extremely difficult while they have already run out of cash due to rising raw material costs. Moreover, SMEs with less than 30 people are worried about manpower shortage as the additional weekly 8-work-hours program will be abolished by the year’s end. Several construction companies based in Korean provinces are going bust as they became cash-strapped with many apartment units they built unsold in presale amid a record economic slowdown in some 12 years.
According to a recent survey by the Korea Enterprises Federation, nine out of 10 local companies said they aimed to maintain the status quo and tighten the belt for the year 2023. Such concerns of companies may result in shrinking investments and hiring, which would likely plunge the economy further into recession. One case in point is the bleak economic outlook for the next year with capital expenditures expected to fall by 0.3% and job growth only at one-tenth the current level.
However, Korean companies have a way of tackling challenges faster than any other competitors and making a new big leap forward through aggressive investment and new ideas whenever a global economic recession hits. There are some signs of opportunities in the world economy such as China, Korea's biggest trading partner, seeming to go into a COVID-19-endemic stage. The Korean government and lawmakers should deregulate and lower taxes further for those companies so that they can restore their enterprising spirit and look for opportunities locally and overseas from early on next year.