Company pessimism grows

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Company pessimism grows

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Sentiment plays a big role when it comes to the economy. Economic conditions can improve if there is lots of optimism in the market even when various factors are relatively unfavorable.

Although companies currently face a deficit, they still can invest more if they believe economic conditions will later improve. On the other hand, if companies are pessimistic about the future, theoretically, they will decrease their investments.

Business sentiment on the economy recovered in the second quarter compared to the previous quarter, but it declined in the third quarter, largely due to negative factors from both domestic and overseas. The outlook for the fourth quarter is not bright. A number of private think tanks have forecast that the Korean economy will grow slower than 1 percent level, or even post losses.

The business survey index (BSI) of 650 manufacturing companies surveyed remained low at 84 in the third quarter, down 6 points compared to the previous quarter, the Korea Institute for Industrial Economics & Trade said Sunday. The index on sales dropped 11 points to 83.

A BSI reading above 100 indicates there are more companies optimistic about the economy, while a reading below the benchmark signals there are more pessimists than optimists.

BSI’s survey by sector showed clearer signs of a slow economy in Korea. The BSI for domestic consumption remained low at 83 and exports recorded 92. They all fell compared to the previous quarter.

The BSI for financial conditions was 85 and profit was 82. The figure for facilities investment and employment remained high at 98 and 96 each.

The BSI in the third quarter fell largely due to the slow information and communications technology sector and large companies. The BSI for ICT fell from 100 in the second quarter to 93 and that of large sized companies dropped from 100 to 85.

Samsung Electronics’ Galaxy7 recall, Hyundai Motor labor unions’ strike and ongoing corporate restructuring might have taken a large toll on the economy.

The BSI for automotive industry fell 16 points from the second quarter to 71 in the third quarter. Electronics, which surpassed the 100 level, fell 14 points to 92 during the same period.

As business sentiment continues to be weak, local public think tanks and institutions are issuing pessimistic forecasts one after another.

“There is a high chance for consumption and investments to be weakened in the fourth quarter of this year,” said Kim Chang-bae, a researcher at Korea Economic Research Institute. “The economy growth rate will remain below 0 even without the effects of the Galaxy Note7.”

Lee Keun-tae, a researcher at LG Economic Research Institute, also said the Korean economy will grow between 0 percent and 0.5 percent in the fourth quarter. “The global economy continues to be sluggish and Korea’s exports and construction have decreased compared to the past.”

However, Korean businesses had more optimistic views about their sales data in the fourth quarter unlike other public institutions.

According to Korea Institute for Industrial Economics & Trade, the BSI for the fourth quarter hit 96 and sales were 99, close to the optimal mark.

“We expect that the exports in the fourth quarter will rebound as economies in import countries of Korean goods are improving,” said Kim Kun-woo, a researcher at the Institute for International Trade.


BY KIM YOUNG-NAM [kim.youngnam@joongang.co.kr]

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