One in Four of the Top 500 Companies "Reduce Investment in the Second Half of the Year"

Half Remain Unchanged... Only 16% of Companies Plan to Increase
"One in Four Cutting Back Due to Raw Material and External Risks"

[Image source=Yonhap News]

[Asia Economy Reporter Moon Chaeseok] One in four of the top 500 companies by sales plans to reduce investment in the second half of the year, according to a survey. This is due to worsening external conditions such as the sharp rise in raw material prices and accelerated global monetary tightening.

On the 30th, the Federation of Korean Industries (FKI) announced the results of a survey on the '2022 Second Half Domestic Investment Plans' targeting the top 500 companies by sales. The survey was conducted by the public opinion research firm Mono Research, with 100 companies responding.

Among the respondents, 28% said they would reduce their investment scale compared to the first half of the year. Only 16% said they would increase it.

The companies planning to reduce investment cited domestic and international economic instability, such as rising international raw material prices (43.3%), as the primary reason. Deterioration in financial sector funding conditions (19.0%) followed.

Companies planning to increase investment viewed securing future growth engines (33.4%) as the most important factor. Regarding this, the FKI interpreted that "due to the very uncertain external environment, the outlook for investment reduction was dominant."

The three major risk factors for investment in the second half of the year were identified as persistent high inflation (30.4%), contraction of asset and real economy due to global monetary tightening (22%), and worsening supply chain disruption due to the prolonged Ukraine crisis (20.3%).

The FKI expressed concern that "recent domestic supply prices and consumer prices have both continued to surge, increasing pressure on production costs and wage rises, which could shrink corporate investment capacity."

According to the Bank of Korea, the domestic supply price inflation rate in April rose to 15.3%, more than double the 6.6% recorded a year earlier. The consumer price inflation rate also nearly doubled from 2.5% to 4.8% during the same period.

Regarding the timing for revitalizing investment activities, 58% of the respondent companies answered "next year." Only 13% said "second half of this year," and 10% answered "no foreseeable time," which is not insignificant.

The top three policy tasks to promote investment were identified as support for stabilizing international raw material supply and exchange rates (27.3%), adjustment of the pace of interest rate hikes (17.7%), and strengthening tax support such as corporate tax cuts and research and development (R&D) credits (16.3%).

Choo Kwang-ho, head of the FKI Economic Headquarters, diagnosed that "companies facing management uncertainties such as high inflation, high exchange rates, and high interest rates find it difficult to proactively increase investment at this time." He added, "With the new government's efforts to improve corporate tax systems, deregulate, and strengthen cooperation systems for raw material supply with major countries, corporate investment sentiment is expected to gradually recover in the second half of the year."

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