Korean companies wary of investing given uncertainties, survey shows

SK Group holds a business strategy meeting at Grand Walkerhill Hotel in eastern Seoul on Thursday. [SK]

Eight out of 10 Korean companies do not plan on spending more in the second half of this year, mainly due to economic uncertainties, despite the government’s assurance of recovery.

Of the 107 major companies surveyed on their plans for investment in the latter half of the year, 85 percent said they will either spend as much as they did in the first half or spend less than that, according to the Federation of Korean Industries (FKI) Thursday.

Of the surveyed companies, all among the top 500 firms in terms of revenue, 60.7 percent said their investment size will be on par with that of the first half, while 24.3 percent said it will be smaller.

Companies blamed uncertainty in the economic outlook as the No. 1 reason for not expanding their financing, at 37 percent. Other reasons were: prolonged global monetary tightening, at 18.7 percent; contraction in the financial market and difficulty in procuring funds, at 11.7 percent; and worsening financial status and high exchange rates, at 7.7 percent apiece.

The report comes amid the government repeatedly guaranteeing a better economy in the second half.

“The government has said the economy will slow down in the first half and improve in the second, but this isn’t just me speaking. The International Monetary Fund, the Bank of Korea and the Korea Development Institute all say the same,” Finance Minister Choo Kyung-ho said in an economics session held at the National Assembly Wednesday last week.

Companies said a sluggish economy is the biggest investment risk in the second half, at 28.4 percent, tailed by continued rate hikes, at 22.1 percent, and high exchange rates, at 14.3 percent.

When asked about the timing for increased investments, 67.2 percent answered “next year,” whereas 10.3 percent said “second half this year.”

“Businesses find it difficult to engage in vigorous investment because of the shrinking global economy, plunging exports and piling inventory from weak sales,” FKI’s Economic and Industrial Division Head Choo Kwang-ho said.

"They need more research and development support, fewer government regulations and continued labor market reform to put in more money," according to an FKI official.

Companies are rolling up their sleeves to brace for a tough second half.

SK Group leadership held a business strategy meeting at Grand Walkerhill Hotel in eastern Seoul Thursday to put heads together for the upcoming six months. SK Chairman Chey Tae-won presided over the meeting attended by some 30 top officials of the conglomerate, including SK Innovation Vice Chairman Kim Jun, SK Inc. Co-Vice Chairman and CEO Jang Dong-hyun and SK hynix Co-CEO Park Jung-ho.

Chey reportedly told SK subsidiaries to “systematically prepare second-half countermeasures in accordance with the unclear business environment” during the meeting.

Samsung Electronics is having a three-day strategy meeting starting Tuesday, held both online and offline for its senior officials in Korea and abroad.

“Business conditions [this year] are worse than last year’s,” an industry source said. “Serious game plan meetings under heavy atmosphere are likely being held at any company.”

BY CHOI EUN-KYUNG, SOHN DONG-JOO [sohn.dongjoo@joongang.co.kr]