What Are the 3 Major Burdens in Corporate Management? Raw Material Price Increase, COVID-19 Resurgence, Interest Rate Hike

Discussion on 'Corporate Perception Survey of Business Environment'
Financial burden increases due to recent interest rate hikes... 67% of companies say "Interest rate hikes are preferable after next year"
3 out of 4 companies say "The COVID-19 crisis still persists"
During the presidential election season, expectations from politicians = Focus on economic issues (76%), solutions to overcome low growth (70%), restraint on economic burden pledges (62%)

[Asia Economy Reporter Kim Hyewon] Amid the majority of companies still struggling to overcome the COVID-19 crisis, a survey revealed that rising raw material prices, the resurgence of COVID-19, and interest rate hikes are the biggest burdens on corporate management.

On the 30th, the Korea Chamber of Commerce and Industry conducted a survey of 310 domestic companies (104 large enterprises and 206 small and medium-sized enterprises). The companies identified 'rising raw material prices' (81.6%), 'COVID-19 resurgence' (80.6%), and 'interest rate hikes' (67.7%) as the main burdens affecting the economy. 'Responding to environmental issues such as climate change' (47.4%) and 'US-China trade conflicts' (46.8%) followed.

In reality, companies that cannot fully reflect soaring raw material prices in product prices are facing management difficulties. Company A in the chemical industry said, "Even though sales increased due to the recovery of the construction market, the rise in logistics costs combined with the increase in raw material prices resulted in a 10-20% decrease in net profit."

Company B in the parts industry also expressed difficulties, saying, "Aluminum prices surged 35% compared to the previous year, but it is impossible to reflect the increased costs in the products due to delivery contracts," adding, "Workload has increased, but there is nothing left."

67% of Companies Say "COVID-19 Recession Continues, Interest Rate Hikes Should Be After Next Year"

Following the Bank of Korea's interest rate hike on the 26th, financial cost burdens on companies are expected to increase. In this survey conducted before the rate hike, 66.5% of responding companies said, "Given the serious resurgence of COVID-19, interest rate hikes should be after next year." Companies agreeing on the necessity of rate hikes within the year due to household debt and asset market overheating accounted for 27.8%, including "a slight increase once within the year" (22.3%) and "two slight increases within the year" (5.5%).

The Korea Chamber of Commerce and Industry stated, "As the debt burden of domestic companies is increasing, additional interest rate hikes should be minimized." According to the Bank of Korea's Financial Stability Report, the proportion of companies with interest expenses exceeding operating profits and thus weak interest payment capacity (interest coverage ratio below 1) increased from 35.1% in 2019 to 39.7% last year. This was especially true for small and medium-sized enterprises, reaching about half at 50.9% (compared to 28.8% for large enterprises).

Three out of Four Companies Say "COVID-19 Crisis Still Ongoing" (78%)

Despite economic indicators recovering in the first half of the year, only 18.7% of companies responded that they had "overcome the COVID-19 crisis." The majority, 77.5%, said they had not overcome the crisis. However, among them, 57.8% responded that "although current business conditions are poor, they will gradually improve," showing high expectations for overcoming COVID-19. Meanwhile, 19.7% said, "It will be difficult for business conditions to improve even after COVID-19 subsides."

Regarding the upcoming presidential election season in the second half of the year, companies hoped that economic issues would not be pushed to the back burner. When asked about their expectations for the political sphere during the election season, 75.8% of companies requested a focus on resolving the COVID-19 crisis and economic issues. Requests for "overcoming the low-growth trap and presenting visions and solutions for sustainable development" came from 69.4%, and "restraint on pledges that burden the economy and companies" was cited by 62.3%.

Regarding the direction presidential candidates should take to address polarization issues, the most common response (47.1%) was a win-win solution: "Large corporations and high-income groups should voluntarily present policies and solutions to support small and medium-sized enterprises and low-income groups." The opinion that "policy efforts should focus on expanding the economic power of small and medium-sized enterprises and low-income groups" was also high at 46.5%. Only 3.9% responded that "the economic power expansion of large corporations and high-income groups should be suppressed."

Kim Hyunsu, head of the Economic Policy Team at the Korea Chamber of Commerce and Industry, said, "Corporate perceptions of the business environment are reflected in economic sentiment and influence future economic trends. Since the corporate BSI exceeded 100 for the first time in seven years at 103 in the third quarter, continuous government and political attention and support are urgently needed to ensure that the recovery trend does not fade even amid the resurgence of COVID-19."

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