"Worsening Performance of Key Industries in the Second Half, Recovery Expected No Earlier Than Q2 Next Year"

[Asia Economy Reporter Kim Hyewon] Amid the COVID-19 pandemic, the strong performance of key industries such as semiconductors helped sustain results in the first half of this year, but forecasts indicate a deterioration in performance in the second half. The decline in exports due to COVID-19 was identified as the main factor behind the poor performance. If COVID-19 continues at the current level, it is expected that the recovery of key industries' performance will not occur until the second quarter of next year at the earliest.

The Federation of Korean Industries conducted a "First Half Performance and Second Half Outlook Survey" targeting six associations representing major export industries. They predicted that sales and operating profits in the second half would decrease by 4.2% and 13.8%, respectively, compared to the same period last year. Exports in the second half are expected to decline by 5.1% compared to the same period last year.

According to the survey of policy department heads from six major export industry associations?semiconductors, automobiles, petrochemicals, shipbuilding and offshore plants, displays, and electronic information and communications?the sales of key industries in the first half increased by 0.3% compared to the same period last year, but sales in the second half are expected to decrease by an average of 4.2%. However, excluding the semiconductor sector, which performed well despite the COVID-19 shock, first half sales actually decreased by 3.3% compared to the same period last year. This suggests that without the semiconductor sector's distortion, both first and second half sales performance and outlook are expected to be worse than last year.

Operating profits of key industries in the first half decreased by an average of 23.6% compared to the same period last year, and are expected to decline by 13.8% in the second half. With the continued spread of COVID-19 in the second half, it appears difficult for key industries to recover profitability this year.

Exports in the first half decreased by 15.8% compared to the previous year, and are expected to decline by about 5.1% in the second half. The Federation of Korean Industries stated, "If the forecast holds, the total exports of the six industries in the second half will be $113.8 billion, down $5.7 billion from $119.5 billion in the second half of last year." They added, "Although the export decline of key industries, which were hit hard by COVID-19 in the first half, is expected to slow in the second half, performance deterioration will continue."

The biggest challenge for key industries in the first half was most frequently cited as the decline in exports due to COVID-19. Other issues included increased uncertainty caused by COVID-19 and the US-China trade dispute (semiconductors), production disruptions due to COVID-19 (automobiles), and decreased global demand and intensified market competition (displays).

The main factor for the expected deterioration in performance in the second half was also most frequently mentioned as the decline in exports due to COVID-19. Additionally, the automobile and electronics/IT sectors expressed concerns about decreased domestic demand caused by COVID-19. The semiconductor sector worried about price drops due to increased inventory, while the shipbuilding sector was concerned about reduced orders due to COVID-19.

Assuming COVID-19 continues at the current level, the recovery of key industries' performance is expected no earlier than the second quarter of next year. In the face of increasing uncertainties such as the spread of COVID-19 and the strengthening of protectionism, the priority government support tasks identified were: ▲ strengthening tax and subsidy support for companies' productivity improvement efforts such as facility and R&D investments ▲ diplomatic efforts to ease protectionism ▲ liquidity support such as emergency operating funds ▲ rapid and convenient support for businesspeople and companies to prevent damage to export-import activities in case of COVID-19 resurgence ▲ support to expand the contracted domestic market (such as expanding the reduction of individual consumption tax).

Yoo Hwan-ik, head of the Corporate Policy Office at the Federation of Korean Industries, said, "If the COVID-19 situation worsens in the second half, the performance of our companies, which held up well despite the COVID-19 shock in the first half, will deteriorate more than expected." He added, "Since the possibility of a pandemic remains, proactive and preemptive government policy support is necessary to help companies overcome difficulties."

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