Firms look to cut back as a recession looms

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Firms look to cut back as a recession looms

Multiple surveys and reports published Sunday raised the possibility of Korea entering a long-term recession.

Nearly half of Korean companies said they would be tightening their belts next year in a survey conducted by the Korea Employers Federation (KEF), a lobbying group.

On their business directions for 2020, 47.4 percent of 206 respondents said they will be looking to cut spending. A smaller 34.1 percent said they plan to keep spending similar to this year, while 18.5 percent said they would expand their business.

Among the 47.4 percent that plan to cut back, most planned to do so by implementing measures to increase efficiency such as cutting production costs and relocating human resources, rather than drastically reducing production volume or selling off assets, the KEF said.

“We believe the high proportion of companies going into entrenchment next year is rooted in the fact that 65 percent of our respondents felt that the economy is currently in the midst of a long-term recession,” said the KEF.

Forty-eight percent of respondents expected their operating profit next year to be smaller than this year.

In a Sunday comment, private think tank Hyundai Research Institute (HRI) raised the possibility of Korea falling into a “double-dip” recession next year, which refers to a country’s GDP growth retreating back to negative after a period of positive growth.

Over the past month, state-run institutes including the Bank of Korea, Korea Development Institute and private think tanks have reported that 2020 is likely to be a better year for Korea’s exports than 2019, citing hopes that global macroeconomic factors will improve.

“It is true that the coincident composite index is slowly increasing after hitting a low point in March, but there are few signs to tell if the increase is the start of a full-fledged recovery,” wrote Ju Won, head researcher for HRI’s economic research team.

The coincident composite index is a measure of the current economic situation, composed of seven smaller indicators including the number of hired people and consumption.

Korean companies haven’t been enthusiastic in making investments over the past two years - a prerequisite for an economic recovery.

The situation is similar to the last time Korea went through a “double-dip” recession for two and a half years between 2013 and 2015. During that time, the coincident composite index reached 100.6 points in March 2016 but soon dropped back to the 99 point level. A reading above 100 means the economy is growing faster than the long-term average.

The state-funded Korea Development Institute described Korea’s economy as “subdued” for the ninth consecutive month on Sunday.

“Several indicators on the economy have shown improvements, but investment remains low and so do exports,” the KDI said in a report.

However, the think tank gave a different forecast from the HRI, saying that the chance of the economy getting worse is slim: After all, the coincident composite index is slowly improving and so is the economic sentiment index.

BY SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]

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