Election, won uncertainty may curb investment

Investment by Korea’s major companies is expected to slow down sharply this year due to economic uncertainties arising from the won’s strength and December’s presidential election, according to a survey released yesterday by a business lobby group.
The survey, conducted by the Federation of Korean Industries, revealed that the country’s 559 largest groups in terms of sales, excluding financial and insurance firms, will make a combined 77.4 trillion won ($82.3 million) worth of investments this year, up a mere 2.1 percent from a year earlier. The growth rate is compared with 10.4 percent in 2006, 12.8 percent in 2005, 18.7 percent in 2004 and 14.4 percent in 2003.
According to the survey, investment by the country’s 30 largest business groups is projected to grow a mere 0.6 percent from a year ago, becoming a main factor for the slowdown in the entire growth of corporate investment.
The electrical and electronics sectors are likely to trim investment most this year as their profitability is feared to worsen due to the won’s appreciation against the dollar and heated competition.
“Even though they hold a higher level of cash assets, local companies are reluctant to make investments due to uncertain economic prospects as well as difficulties in finding new business opportunities,” the business lobbying group said.
The expectations of dwindling investment reflect local companies’ jitters arising from the won’s appreciation against the dollar and higher oil prices, coupled with uncertainties linked with the election, it said.
A report by the country’s central bank, the Bank of Korea, said earlier that the local currency’s appreciation to the U.S. dollar hurt Korean products’ competitiveness in overseas markets, so overseas shipments have declined. The won gained nearly 9 percent against the U.S. dollar last year.