[Exclusive] "Trapped in a Recession With No Exit"?Is It Dragging Down Korea's Economy? HUG: "1,067 Construction Firms at Risk of Insolvency"

A Total of 1,067 Companies in “Watch,” “Caution,” and “Alert” Stages
Number of Large Corporations in Highest-Risk “Alert” Stage Doubles from 4 to 10
Private Credit Rating Agencies Continue to Sound Warnings on Credit and Liquidity
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The construction industry is sinking into a "recession with no exit." It has been confirmed that more than 1,000 construction companies have been classified as "at risk of insolvency" according to the Housing and Urban Guarantee Corporation (HUG)'s own credit evaluation. Key indicators such as construction investment, work completed, and employment continue to fall, fueling the spread of a "perpetual crisis" narrative. Some even point to the construction industry as the main cause of Korea's economic stagnation.

An apartment construction site in Seoul city. Photo by Yonhap News.

According to the "2025 Credit Evaluation and Ongoing Monitoring" data received from HUG on August 29, out of a total of 2,740 companies engaged in guarantee transactions this year, 1,067 companies (38.9%) were classified as being in stages of insolvency risk such as "watch," "caution," or "alert." The remaining 1,673 companies (61.1%) were classified as normal. The number of companies in the watch, caution, or alert stages has increased for four consecutive years: 714 in 2022, 870 in 2023, and 986 last year. Compared to a year ago, this represents an 8.2% increase. The proportion of such companies among all firms has also risen from 31.8% in 2022 to 38.9% this year, showing an upward trend.

HUG's ongoing monitoring is a system designed to supplement risks that may be missed by conventional credit ratings. The risk of insolvency increases in the order of normal → watch → caution → alert. This early warning system assesses the current credit status of partner companies by incorporating internal information (guarantee and business site data) and external information (financial statements, credit extensions, default records, etc.).

There are 120 companies in the "alert" stage, a 39.5% increase from 86 a year ago. Of these, 110 are small and medium-sized enterprises, while 10 are large corporations. The number of large corporations at the alert stage more than doubled from 4 last year. Although most are small and medium-sized enterprises, even large corporations with relatively ample liquidity have not escaped project financing (PF) insolvencies and liquidity crises. The number of companies in the "caution" stage increased by 10.8% year-on-year to 277, and those in the "watch" stage rose by 3.0% to 670. The number of companies increased in all risk categories.

HUG's credit evaluation is one of the indicators used to gauge the management stability of construction companies. In particular, companies classified as being at the highest risk, the "alert" stage, face stricter or even restricted access to construction-related guarantees. This can lead to increased financial costs and higher business expenses. HUG is the sole institution responsible for housing guarantees, including pre-sale guarantees.

In addition, the three major domestic credit rating agencies (Korea Investors Service, Korea Ratings, and NICE Investors Service) have consistently issued warnings. In the first half of this year, NICE Investors Service analyzed that the ratio of PF contingent liabilities to capital for major construction companies rose from 71.2% in 2022 to 76.1% in 2024. The other two credit rating agencies also maintain a conservative outlook on the credit ratings of construction companies, citing the expansion of PF contingent liabilities and the increase in accounts receivable as factors putting pressure on financial structures.

The widespread concern about creditworthiness across both the public and private sectors stems from the severity of the current situation. According to the "Q2 Construction Industry Information Review" recently released by the Construction Industry Information Center, investment, work completed, and employment have all declined for five consecutive quarters. Investment amounted to 71.8 trillion won, down 11.7% from the same period last year, while work completed fell by 17.1% to 37.1 trillion won. During the same period, employment decreased by 4.7% to 1.96 million people. New orders totaled 47.1 trillion won, marking an 8.4% year-on-year decrease and returning to a downward trend after five quarters. In contrast, the number of construction company closures and deregistrations in the second quarter reached 784 (244 general contractors and 540 specialty contractors), up 10.7%.

An industry insider commented, "This is not just a seasonal 'April crisis' or 'July crisis' as has been mentioned in the past, but a 'perpetual crisis.' The entire industry has fallen into a recession with no exit." The downturn in the construction industry is becoming a risk that drags down the Korean economy. On August 28, Bank of Korea Governor Rhee Changyong projected a GDP growth rate of 0.9% and identified the construction sector slump as the main cause of low growth. Governor Rhee stated, "The contribution of the construction sector to growth is 1.2 percentage points. If the construction sector had merely remained flat, the GDP growth rate would have been 2.1%."