Domestic Companies' Export Sales Show First 'Contraction' Since COVID-19... "Comprehensive Efforts Needed Including Deregulation"

Hankyung Association 'Analysis of Export and Domestic Companies' Performance After COVID-19'
Domestic Companies' Sales in First Half Down 1.9%...First Decline Since 2020
Corporate Investment Down 8.3%... "Focus on Economic Revitalization Policy Support"

In the first half of the year, domestic sales revenue from exports by local companies in South Korea turned to a decline for the first time in four years since the COVID-19 pandemic. Export sales revenue of exporting companies also grew at less than half the rate when excluding Samsung Electronics, the top company. This was the result of a combination of factors including sluggish domestic demand, global economic contraction, and the entry into a downturn cycle in key industries. The business community emphasized the need for comprehensive policy support such as monetary policy, investment support, and deregulation.

Export containers are piled up at Busan Port. Photo by Jinhyung Kang

According to the 'Post-COVID-19 Export and Domestic Companies Performance Analysis' released by the Korea Economic Association on the 13th, the sales revenue of 814 non-financial corporations in the first half of the year increased by 6.7% compared to the same period last year. However, this growth was driven by a 13.6% increase in sales revenue of exporting companies (194 companies), while domestic companies (620 companies) saw a 1.9% decrease compared to the same period last year. This marked the first negative growth since 2020 (-4.2%).

Breaking down domestic companies' sales into export and domestic sectors, export sales increased by 3.7%, but domestic sales decreased by 2.4%. By industry, the largest declines in sales among domestic companies were in holding companies (-17.6%), wholesale and retail trade (-6.5%), electricity, gas, steam, and air conditioning supply (-5.5%), and manufacturing (-1.1%). The Korea Economic Association explained, "Holding companies saw reduced dividends due to poor performance of subsidiaries, and wholesale and retail trade experienced decreased export sales due to weak consumption."

Export companies' sales increased by 13.6%, but this was due to a base effect following a large decline last year (-7.3%). Excluding Samsung Electronics, the top company, the sales growth rate was only 5.9%. This 'illusion effect' of a significant increase in export performance when excluding the top company occurred for the first time in four years since 2020.

Profitability indicators improved. The operating profit margin rose from 2.2% in the first half of last year to 7.4% in the first half of this year. The proportion of operating costs (cost of goods sold + selling and administrative expenses) relative to sales revenue, which was at its highest since 2020 at 97.8% last year, dropped to the lowest level of 92.6% in the first half of this year.

Domestic companies showed a pattern of 'recession-type surplus,' where sales decreased but operating profit increased. This means that companies reduced costs to offset sluggish sales and recorded operating profit surpluses. Domestic companies' sales decreased by 3.7 trillion KRW (-1.9%) from 192.2 trillion KRW in the first half of last year to 188.5 trillion KRW in the first half of this year. Operating profit increased from a loss of 800 billion KRW in the first half of last year to a profit of 10.1 trillion KRW in the first half of this year.

The proportion of companies unable to cover interest expenses with operating profit also reached its highest level since 2020. Among the 814 surveyed companies, 44.7% had an interest coverage ratio (operating profit divided by interest expenses) below 1. This ratio decreased from 36.6% in 2020 to 33.8% in 2021, then rose to 36.6% in 2022, 42.8% last year, and 44.7% this year.

Over the past three years from August 2021 to last month, companies' interest expenses increased due to rising interest rates. The growth rate of corporate interest expenses rose by 5.4 percentage points from 47.5% in 2022 to 52.9% last year.

On the other hand, investment contracted. The corporate investment growth rate in the first half of the year was -8.3%, a sharp decline compared to 16.9% in 2020 during the COVID-19 pandemic economic crisis.

Lee Sang-ho, head of the Economic and Industrial Division at the Korea Economic Association, said, "With persistent domestic demand weakness, global economic contraction, and the entry into a downturn cycle in key industries such as semiconductors, there is growing concern that current export performance may have reached its 'peak.' It is a time when comprehensive economic revitalization efforts are needed, including flexible monetary policy, expanded investment support, and deregulation to stimulate household consumption and corporate investment."

This content was produced with the assistance of AI translation services.