Accountants Say "Domestic Economy Will Get Tougher"

Q2 CPA Business Survey Index Declines Compared to 3 Months Ago
Impact of Increased Uncertainty Due to COVID-19 and Export Slump

[Asia Economy Reporter Minji Lee] Accountants are seriously evaluating the economic downturn caused by the novel coronavirus infection (COVID-19).

According to the ‘CPA BSI Vol’ 6 published by the Korean Institute of Certified Public Accountants on the 25th, the Business Survey Index (CPA BSI) as seen by certified public accountants was recorded at 30 for the 2nd quarter and a forecast of 37 for the 3rd quarter. A BSI score above 100 means that there are many positive economic outlooks. The recently announced figures have sharply declined compared to the 1st quarter figure of 62 and the 2nd quarter forecast of 70, which were announced at the end of February. The survey was conducted over five days from the 20th to the 24th of last month, targeting 390 certified public accountants, with an overall response rate of 47%.

The proportion of accountants who responded that the economy would worsen was 74% for the 2nd quarter and 67% for the 3rd quarter, while those who responded that it would improve were 4% for the 2nd quarter and 5% for the 3rd quarter. Most respondents expected the economic downturn to continue in the 2nd and 3rd quarters of this year. The main factors cited were △ uncertainty in the external environment due to COVID-19 △ sluggish exports △ domestic demand recession. Among these, uncertainty in the business environment caused by COVID-19 was considered the top factor in economic judgment.

The Korean Institute of Certified Public Accountants stated, “Due to lockdowns in various countries caused by the spread of COVID-19, global trade has sharply declined, resulting in a significant decrease in exports,” adding, “As Korea is highly dependent on external trade, the damage caused by the decline in exports is expected to be considerable.” Conversely, respondents who forecasted economic improvement cited the government’s expansionary fiscal policy as the main factor. This implies that active fiscal policy by the government is necessary to minimize the impact of COVID-19.

The detailed factors expected to affect the domestic economy this year were △ global economic slowdown and financial market instability due to COVID-19 △ whether consumer sentiment improves △ government’s expansionary fiscal policy △ whether corporate investment sentiment improves, in that order.

By industry, all sectors except pharmaceuticals & bio, food & beverage, and distribution industries were found to be unable to escape the impact of COVID-19. The sluggishness of export-driven and key industries such as petrochemicals, automobiles, steel, shipbuilding, and refining was evaluated as very serious.

Looking at the BSI for the petrochemical industry, it was 28 in the 2nd quarter and 41 in the 3rd quarter this year, showing a predominantly negative evaluation. Respondents cited the contraction in trade leading to a decline in demand for petrochemical products and the global economic slowdown caused by COVID-19 as industry risk factors. They predicted that in order for the business conditions to recover, a restructuring of the business portfolio toward high value-added advanced chemicals such as high-performance chemical products is necessary.

Since its first publication in June 2018, the CPA BSI released by the Korean Institute of Certified Public Accountants has been recognized for proactively forecasting the economy through five editions. This issue includes contents such as △ Suggestions for overcoming the current economic crisis situation where the COVID-19 impact is expanding and for sustainable growth (Yoo Il-ho, former Deputy Prime Minister and Minister of Strategy and Finance), and △ The role of artificial intelligence in the accounting field (Ingu Han, Professor at KAIST Business School and Vice Chairman of Industry & Economy at the Korean Institute of Certified Public Accountants).

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