New Year Weather Forecast... Pharmaceuticals & Cosmetics 'Clear' IT & Petrochemical 'Cold Wave'

KCCI Surveys 2,254 Manufacturing Companies Nationwide
'2023 Economic and Business Outlook from the Perspective of Companies'

[Asia Economy Reporter Choi Seoyoon] Amid a bleak outlook for the Korean economy, a survey found that the industries expected to perform best in the new year are pharmaceuticals and cosmetics.

The Korea Chamber of Commerce and Industry recently announced on the 3rd that it conducted a survey titled ‘2023 Economic and Business Outlook from the Perspective of Companies’ targeting 2,254 manufacturing companies nationwide. Analyzing the new year’s industry weather map by comparing sales forecasts, the ‘clearest industries’ were pharmaceuticals, cosmetics, and electrical equipment, in that order. The ‘industries facing a cold wave’ were non-metallic minerals, textiles, petroleum and chemicals, and IT and home appliances, respectively.

Pharmaceuticals continue to benefit from the COVID-19 special demand, and cosmetics have been buoyed by expectations of a recovery in Chinese consumption. On the other hand, industries with a high proportion of raw materials and sensitivity to global demand showed negative outlooks.

Food, automobiles, shipbuilding, and medical and precision industries showed slight sales growth forecasts and were classified as ‘slightly clear,’ while steel, machinery, and wood and furniture industries showed slight sales decline forecasts and were classified as ‘cloudy.’

The economic growth rate of South Korea in 2023, as forecasted by companies, was estimated at around 1.16%. Compared to domestic and international institutions’ forecasts of 1.5 to 2.0%, this indicates that companies on the ground perceive the economic conditions to be less favorable. This reflects concerns about domestic demand contraction amid high inflation and high interest rates.

Among the companies surveyed, the most common forecast range was 1.0 to 1.5% at 30.6%, followed by 1.5 to 2.0% at 28.8%, and 0.5 to 1.0% at 15.4%. While 8.8% of companies predicted negative growth, only 0.4% expected growth above 3%. The weighted average of all responses was 1.16%.

When asked about sales and export performance compared to last year, the largest number of companies answered ‘the same level,’ but overall, more companies chose the ‘negative’ range, resulting in a weighted average indicating a contraction in the 1% range.

Regarding sales forecasts, 33.1% of companies expected ‘the same level,’ but 34.5% chose the negative range and 32.4% the positive range, with a weighted average of -1.0%.

For export forecasts, 43.2% of companies expected ‘the same level,’ while 26.2% chose the negative range and 30.6% the positive range, with a weighted average of -1.3%.

Reflecting the poor outlook for business performance, many companies responded that they would operate investments conservatively. When asked about investment plans for the new year compared to last year, 53.5% answered ‘the same level as last year,’ and 33.9% said ‘decrease compared to last year.’ Only 12.6% of companies planned to increase investments compared to last year.

In a similar survey conducted at the end of 2021 using the same method targeting manufacturing companies nationwide, 41.6% responded that they would ‘increase investments aggressively compared to last year.’ This represents a 29 percentage point decrease in just one year. Conversely, conservative responses of ‘same or decreased compared to last year’ increased significantly from 58.4% in the 2022 forecast to 87.4% in the 2023 forecast.

Companies identified the continuation of the ‘3 highs’ phenomenon and a slowdown in domestic consumption as the biggest risk factors threatening the Korean economy in the new year. The most frequently cited risk was ‘continued high inflation and raw material prices’ (67.3%, multiple responses allowed), followed by ‘domestic economic recession’ (38.2%), ‘continued high interest rates’ (29.2%), ‘instability in supply of raw and subsidiary materials’ (17.8%), and ‘prolonged high exchange rates’ (16.7%).

To manage these risk factors, companies most frequently pointed to ‘interest rate policies considering economic conditions’ (47.2%) and ‘stabilization of foreign exchange markets including exchange rates’ (42.6%) as priorities for government focus. This was followed by ‘easing of funding market tightness’ (32.2%), ‘securing growth engines through regulatory innovation’ (21.7%), ‘support for exports and corporate activities’ (21.3%), and ‘stabilization of supply chains’ (20.2%).

Kim Hyunsoo, Director of Economic Policy at the Korea Chamber of Commerce and Industry, said, “The current economic difficulties are problems all countries worldwide are facing during the normalization process after COVID-19, so the gains and losses during the economic recovery period depend on who implements proactive and definite countermeasures first. Now is the time for all members of the Korean economy?including the private sector, government, political circles, business community, and labor?to unite their efforts to overcome the economic crisis well.”

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