Thursday, April 9, 2020
South Korean Companies Facing Global Demand Plunge
Crisis in Real Economy May Spread to Financial Sector
South Korean Companies Facing Global Demand Plunge
  • By Jung Min-hee
  • March 16, 2020, 12:13
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COVID-19 is likely to cause global demand contractions and capital market crises. 

COVID-19 as a pandemic is posing an unprecedented threat to the South Korean economy by causing global demand contractions and capital market crises beyond production setbacks in China. Economists’ consensus is that the export-driven South Korean economy will take a direct hit if the virus continues to spread in the United States and Europe.

South Korean oil companies’ underperformance for the first quarter of this year is a fait accompli now. Their aviation fuel sales have already nosedived and plummeting oil prices have dropped the value of their inventory. In the shipbuilding industry, forecasts are getting worse and worse with offshore plant construction projects and the like postponed one after another.

POSCO’s Q1 operating profit is estimated to be halved. Kyobo Securities estimated the figure at 597 billion won on March 11, which is slightly less than half of the Q1, 2019 operating profit of the steelmaker.

The semiconductor sector is likely to be affected by a decline in smartphone sales. According to Hanwha Securities, Samsung Electronics’ Q1 operating profit is estimated at 6,429 billion won, up 3.1 percent from a year ago. Meanwhile, Shinhan Financial Group’s estimate is 6,082 billion won, down 2.4 percent from year earlier.

S&P said in its recent report that a decline in demand for products and services will have more impact on South Korean companies’ performances and credits than production setbacks in view of their high dependence on exports. “The most vulnerable sectors include oil refining, chemical, steel, freight logistics, automobile and electronics,” it said.

In the meantime, CNN Business reported on March 14 that the economic impact of COVID-19 may lead to system risks in combination with corporate bond defaults. “Such defaults and lowered credit ratings can result in employment and investment reduction and an accelerated recession,” it explained.