Hana Financial Research Institute "Long-term Outlook for Worsening Business Environment of Korean Companies"

Hana Financial Management Research Institute Publishes 2023 Industry Outlook Report
Exports Decline, Inventory Increase, and Rising Labor Costs Expected to Create Multiple Challenges
Most Industries Face Recession... Only Secondary Batteries and Refining Expected to Sail Smoothly

[Asia Economy Reporter Minwoo Lee] As the global economic slowdown is expected to continue for the time being, an analysis suggests that the business environment for domestic companies will deteriorate over a prolonged period. Most industries, except for the secondary battery and petroleum sectors, are forecasted to post sluggish performance next year.

On the 20th, Hana Financial Management Research Institute published the '2023 Industry Outlook' report containing these insights. The report anticipated that, amid globally sustained high interest rates and intensified downward economic pressures, Korean companies will be exposed for a considerable time to adverse factors such as ▲declining exports ▲increased inventory ▲rising labor costs.

The report projected 15 industries across 5 major sectors, expecting only petroleum and secondary batteries to achieve decent results next year. The other 13 industries?including steel, petrochemicals, semiconductors, displays, mobile phones, information technology, automobiles, shipbuilding, shipping, food and beverages, retail, construction, and hotels?are all expected to see performance contraction compared to this year.

First, concerns were raised that key export items such as semiconductors, automobiles, and petrochemical products will falter. In the case of semiconductors, the report judged that the short-term boom driven by the COVID-19 special demand has ended, and the industry is entering a downturn. Although the shortage of automotive semiconductors is expected to somewhat improve, a decline in demand due to the economic slowdown is deemed inevitable. Petrochemical products are forecasted to face limited demand recovery due to the combined effects of economic slowdown and various countries' de-plasticization policies.

Inventory increases were also identified as a burden factor. Companies accumulated inventory amid concerns over supply chain recovery, but demand sharply declined due to the economic slowdown. Particularly, inventory assets are rapidly increasing in electronics, steel, and apparel sectors. The report advised that companies should prepare for a period of focusing on inventory clearance through discount sales and reduced operating rates, which may also lead to performance deterioration among material and component suppliers.

It also urged caution regarding the continued rise in labor costs. Following the COVID-19 pandemic, labor shifted toward delivery services and IT sectors, resulting in a labor shortage across industries that is expected to persist next year. Consequently, the report forecasted a prolonged cost burden issue for service industries with high labor cost ratios.

Kim Muntae, a research fellow at Hana Financial Management Research Institute, diagnosed, "As the recovery effect from COVID-19 rapidly fades due to the sharp rise in interest rates, demand contraction is anticipated. Meanwhile, manufacturing companies still face cost burdens and inventory clearance risks, making corporate management capabilities even more critical."

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