Korean companies delay investments over volatile economic outlook

Economy

Published: 05 Dec. 2023, 18:44 Updated: 05 Dec. 2023, 19:32

Korean companies delay investments over volatile economic outlook

Around half of Korea’s major corporations have not made their investment plans for next year amid an uncertain economic outlook, according to a survey published Monday. Pictured is a photo of a cluster of corporations in the Seoul city center, taken from Namsan Mountain. [YONHAP]

Around half of Korea’s major corporations have not yet made their investment plans for next year amid an uncertain economic outlook caused by high interest rates, a weak Korean won, ongoing geopolitical conflicts and the slow recovery of China’s economy.

A survey on investment plans for 2024 conducted among Korea’s 500 largest companies by revenue, made by local pollster Mono Research and commissioned by the Federation of Korean Industries (FKI), was published on Monday.

Of the 131 respondents, 49.7 percent replied that their company was “undecided” for investment plans for 2024, 45 percent responded they had made investment plans and 5.3 percent responded that they have “no investment plans.”

Among the companies that have made investment plans, 61 percent responded they will “invest about the same amount next year,” 28.8 percent responded they will increase their investments next year and 10.2 percent said they will reduce their investments.

In comparison to an identical survey conducted by the FKI over the same period last year, the proportion of companies with undecided investment plans largely jumped from 38 percent in 2022 to 49.7 percent this year.

But among the companies that have decided on their investments for next year, the proportion of companies that expect to increase investment in the coming year more than doubled compared to last year, from 13.5 percent to 28.8 percent. Companies that expect their investments to decrease dropped by almost half, from 19.2 percent to 10.2 percent.

The FKI analyses the results to indicate that “while many companies are still postponing investments due to the uncertain business environment, more companies than last year are willing to increase their investments to improve their competitiveness and prepare for future market changes.”

Reasons given for the decision to increase investment included securing new growth engines for the future, which was cited by 37.3 percent, good economic outlook for next year, cited by 25.5 percent, and expectations of improving business environments, selected by 15.7 percent.

For the companies that will reduce their investment in 2024, 31.6 percent cited the unclear economic outlook, 26.6 percent cited the increased risk of rising costs and 14.3 percent cited the difficulty in obtaining financing due to the contraction of financial markets as major roadblocks.

Most companies predicted the economy to recover during the latter half of next year. When asked when they expected the economy to rebound and when they would make their investments, one-third, or 32.8 percent, of companies pointed to the second half of 2024. But there was also a hefty 21.4 percent that responded there was “no promise” of recovery.

The top three investment risk factors for 2024 cited by companies in a survey from the Federation of Korean Industries were the continued high interest rates, continued weak won and high inflation, and the global economic slowdown. [YOO YOUNG-RAE]

The top three investment risk factors cited were the continued high interest rates, continued weak won and high inflation and the global economic slowdown.

The barriers faced by corporations when making investments included regulations on new and expanded facilities, environmental, social, and corporate governance (ESG) regulations and a lack of related support, and regulations on entry into new industries.

As for measures needed to improve the investment environment, companies asked for lower interest rates, a cut to corporate tax and increase in tax incentives, easing of investment-related corporate regulations and expansion of financial support.

"Despite difficult business conditions such as continued economic uncertainty and poor financial performance, the increase in the number of companies planning to expand investment compared to last year is an encouraging sign for the Korean economy,” said Choo Kwang-ho, senior director of the FKI’s Economic & Industrial Division.

"In order to turn around the investment sentiment, we need to continue institutional improvements such as deregulation and urgently come up with financial and tax support measures to improve the difficult financial situation of companies,” added Choo.

BY LEE HEE-KWON, KIM JU-YEON [kim.juyeon2@joongang.co.kr]