South Korean companies’ capital expenditures are falling along with their overseas investment. This has to do with mounting uncertainties stemming from the ongoing trade war between the United States and China and Turkish economic crisis.
According to the Bank of Korea, South Korean companies’ net exports through transit trade of the goods produced in their overseas production bases marked US$2.99 billion in the second quarter of this year, a drop from US$3.84 billion in the first quarter. The figure decreased for two quarters in a row. For reference, intermediate trade totaled US$12.73 billion last year, the second-highest ever, based on an increase in overseas investment.
Transit trade occurs when a Korean company purchases the goods produced by its overseas affiliates and exports them to a third country without bringing them into Korea.
The recent decline in intermediate trade is because of global economic uncertainties. The Bank of Korea’s business sentiment index (BSI) released on August 30 also evidences the deteriorating business sentiment. The overall industrial BSI fell from 75 to 74 from last month to this month. The index rose from 79 to 81 from April to May, but has fallen for three months in a row since then. Last month, it showed a decline of five points, the steepest decline since June 2015.
Experts point out the need for various pump-priming measures. For example, the BSI of the automotive industry rose from 65 to 66 from July to August after the government’s special consumption tax cut extension for car buyers. The BSI forecast of the industry went up from 62 to 66, too.