With COVID-19 Recession Accelerating, 'Overseas Direct Investment' Slows for 2 Consecutive Quarters... Prolonged Impact Could Harm Current Account Balance

[Asia Economy Reporter Jusangdon] Due to the global spread of the novel coronavirus infection (COVID-19), South Korea's overseas direct investment (ODI) in the second quarter of this year decreased again following the first quarter. When overseas direct investment decreases, earnings through overseas subsidiaries decline, which ultimately has a negative impact on the current account balance.

On the 18th, the Ministry of Economy and Finance announced that the amount of overseas direct investment in the second quarter of 2020 (April to June) was $12.14 billion, down 27.8% compared to the same period last year. The decline was significantly larger than the first quarter (-4.0%), marking the first time in five quarters since Q4 2017 to Q1 2018 that overseas direct investment decreased for two consecutive quarters. The first quarter's investment decline rate was revised from -15.3% to -4% after reflecting delayed reports.

Looking at the monthly changes in overseas direct investment, the decrease due to COVID-19 becomes clearer. The levels in January and February this year were similar to last year, but in March, when COVID-19 began to spread in earnest, it dropped by 45.6%. The downward trend intensified further with April at -38.3% and May at -60.0%. However, in June, the decline rate narrowed to -0.7%.

In particular, the manufacturing and finance & insurance sectors experienced large decreases. Overseas investment in manufacturing, which fell 43.7% in the first quarter, saw a steeper decline of 62.7% in the second quarter. The finance & insurance sector also decreased by 21.3%. Mungyeonghwan, Director of the External Economy Division at the Ministry of Economy and Finance, explained, "Overseas direct investment decreased due to the spread of COVID-19. In the case of manufacturing, investment decisions require direct visits to local sites, but movement was restricted due to COVID-19. For finance & insurance, investment declined due to uncertainty caused by COVID-19." On the other hand, the real estate sector continued its investment growth trend, increasing by 7.3% year-on-year, driven by a diversification strategy of revenue sources amid low growth and low interest rates.

Overseas direct investment refers to cases where individuals residing in South Korea or corporations with their main office in South Korea invest 10% or more of the total issued shares or capital of a foreign corporation to participate in its management, or when funds are provided to establish, expand, or operate branches, offices, or other business locations abroad or to conduct overseas business activities. Recent surges in overseas stock investments by individual investors are not included.

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