[Urgent Survey of Top 1000 Companies] 8 out of 10 Say 'Global Environment is Threatening'... "No Countermeasures"

Asia Economy-Korea Employers Federation Joint Survey
77.5% Say External Factors Make Management Difficult
41.2% Negative Outlook on Business Environment in Second Half

Stagflation Emerges as Negative Factor
Cost Increases Due to Interest Rate Hikes Also Threatening

Our companies forecast that in the second half of this year, amid a slowdown in global growth, inflation will soar, ushering in a phase of 'low growth and high inflation.' In particular, they expect an average decline of -3.6% in performance for the second half. As the overall economy weakens, if this situation persists, there is a heightened possibility that the Korean economy could fall into stagflation?a condition of economic stagnation accompanied by rising prices.

The causes are varied. Last year, the economy showed a trend of 'high growth and high inflation,' recording 4% economic growth and a 2.5% consumer price inflation rate. However, since the spread of COVID-19, the economy has contracted, and inflationary pressures have increased due to global supply shortages, leading companies to shift their outlook back to 'high growth and high inflation.'

Growing Concerns Over External Variables: 8 out of 10 Companies Expect 'Negative Impact'

According to the 'Asia Economy-National Federation of Economic Organizations Joint Survey' conducted on the top 1,000 companies by sales on the 15th, 65.2% of companies cited 'increased production costs due to rising raw material prices' as the reason for the expected decline in second-half performance. 'Production disruptions due to global supply chain damage' accounted for 13%, with a total of 78.3% of companies predicting that external factors will negatively affect corporate growth.

This trend is also evident in other survey items. When asked about the impact of external variables, 28.4% responded 'very negative impact,' and 49% said 'negative impact,' totaling 77.5% of companies expecting adverse effects. Only 5.9% anticipated a positive impact from the external environment. An executive from a major corporation stated, "Given the significant instability caused by external factors such as the Ukraine-Russia war and US-China conflicts, it is difficult to have a bright economic outlook for the second half. As a result, all companies are highly tense."

Experts point out that the difficulties in the global economy are hard to manage, necessitating flexible measures from our government and companies. Professor Kim Byung-jo of Korea University’s Business School said, "With a recession looming and significant external variables, it is challenging for our government and companies to present appropriate solutions. We must acknowledge that some problems are beyond our control and focus on resolving what we can within our scope."

Senior Research Fellow Cho Cheol of the Korea Institute for Industrial Economics & Trade said, "In the second half, as companies predict, rising raw material prices and global supply chain issues will be paramount. Just as we cannot end the Ukraine-Russia war, we must first identify what we can respond to and address those issues with a proactive attitude."

Second Half Risks: 'Global Supply Chain Disruptions' and 'Stagflation'

Regarding the outlook for the business environment in the second half, 41.2% of companies expressed a negative view (7.8% very negative, 33.4% negative). Furthermore, the biggest concern for risks to the Korean economy in the second half was 'global supply chain disruptions caused by ongoing US-China conflicts and prolonged Ukraine crisis,' cited by 44.1%.

Lee Kyung-ho, head of economic policy at the Federation of Korean Industries, explained, "Due to significant fiscal spending in the previous administration related to COVID-19, it is currently difficult to defend the economy through fiscal measures. Also, concerns are reflected that aggressively raising interest rates to curb inflation could shrink the economy."

Stagflation caused by rising prices is also a major concern. 34.4% of companies identified 'occurrence of stagflation' as a threat to management in the second half. Regarding interest rate hikes to control inflation, 13.8% of companies warned of risks such as 'increased capital procurement costs and bankruptcies of marginal companies' due to higher interest rates.

Experts emphasize that because it is difficult for our government and companies to find clear solutions to global supply chain difficulties and interest rate pressures, it is urgent to strengthen the fundamental resilience of our economy. Lee said, "In the current situation, with global crises and limits to fiscal policy, we must follow the most basic approach of revitalizing our economy by enhancing corporate vitality. Activating companies will lead to more aggressive employment, which in turn can stabilize prices."

Professor Kim added, "It is true that stagflation and recession are concerns in the current economic situation. While Korean companies focused on future technology investments during COVID-19, now concentrating on their core technologies to build fundamental strength is one way to withstand an economic downturn."