S. Korean business confidence subdued Q1 amid labor concerns and strong won

2018.01.05 13:34:06 | 2018.01.05 13:51:47

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Business sentiment at the Korean manufacturing front remains dismal regardless of improving economic figures, data showed.

The business sentiment index (BSI) compiled by the Korea Chamber of Commerce and Industry on a poll of 2,100 manufacturers stood at 86 for the first quarter, up from 85 in the previous quarter but still far below the 100 confidence threshold.

The last time business confidence level was above 100 was in the third quarter of 2014.

If confidence levels surpass 100, the economy is believed to be expanding, whereas a reading below 100 indicates a projected downturn in business.

Business sentiment improved significantly from 68 in the first quarter last year to 89 and 94 in the following quarters but retreated in the final quarter.

The biggest concern among external business factors in the coming months was the strengthening won (52.1 percent), followed by monetary tightening trend in major economies (35.5 percent), trade frictions (28.6 percent), and geopolitical risk from the North Korean threat (24.7 percent).

The Korean won appreciated 14 percent against the U.S. dollar last year, passing the 1,060 won threshold in the new year for the first time in three years.

On the domestic front, 68.8 percent of respondents pointed to unstable labor relations under the liberal Moon Jae-in government. Labor unions have become more vocal as they stand in support of the government’s labor-friendly policies such as upping the minimum wage and pressuring employers to convert irregular workers to permanent status. A recent survey by Korea Employers Federation found that seven out of 10 companies predicted labor relations to worsen this year.

The rising interest rate was cited as another major uncertainty by 52 percent of companies. The country’s benchmark rate, kept at a record low 1.25 percent since June 2016, was raised to 1.50 percent in November last year. The central bank has indicated two additional hikes depending on economic conditions.

Massive household debt (14.7 percent) was also considered a lingering risk as it could translate into a financial crisis if rates are pushed up too rapidly. Korea’s household debt hit an all-time high of 1,419.1 trillion won ($1.33 trillion) at the end of September, a figure tantamount to the country’s total gross domestic product.

Another concern was the government’s aggressive energy plan to shift toward renewables (9.3 percent). The president has pledged to wean the country off nuclear and fossil fuel and boost the share of renewable energy sources from the current 6 percent to 20 percent by 2030, which could push up electricity bills and production cost.

By Kang Doo-soon and Kim Hyo-jin

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]