Sewol Disaster Fallout
The local government was scrambling to revitalize the local economy, to fend off any possible economic slow-down. However, according to some analysis, the Sewol Tragedy has dampened its endeavors, and there are dark clouds hanging over the local economy.
General analysis points out that there needs to be measures to contain the fallout of the Sewol Tragedy, now passing its one month mark.
The conundrum for the government is that it needs to encourage companies to expand investment, create jobs, and stimulate spending, but none of these seems easy now.
A sense of crisis is looming in the form of a national depression derived from the Sewol Tragedy, causing companies and individuals to shut their wallets.
Here lie in the woes of the local government, who finally could afford to look at four percent economic growth after going through the global financial crisis.
According to the Ministry of Strategy and Finance (MOSF), the Bank of Korea, and Statistics Korea on May 18, this year’s first quarter facility investment rose eight percent year-on-year, but fell 1.3 percent over the previous quarter.
The MOSF foresaw, in its “May Economic Trends (Green Book)”, that future facility investment is positively impacted by export boosts and the improvement of company investment sentiments.
It pointed out that the manufacturing segment’s Business Survey Index (BSI) this year is on an upswing trend, recording 79 in January, 81 in February, 85 in March, 86 in April, and 86 in May.
However, the field surveys beg to differ. In the IBK Economic Research Institute’s 2014 survey on facility investment outlook against the nationwide 3,070 small to medium-sized manufacturing companies, the number of companies that are planning to invest in facilities this year stood at 26.5 percent, falling 0.3 percentage points from last year’s 26.8 percent.
IBK Economic research institute’s section chief Ahn Byung-lib said, “Small and medium-sized enterprises (SME) have been putting off facility augmentation on the back of delayed local economic recovery and lower-than-expected export performance.”
Even the companies’ investment plan tended to be conservative investment such as “old facility replacement or renovation” (56.6 percent) and “existing products’ production expansion” (47.6 percent).
Large corporations were no different. Korea Economic Research Institute (KERI)’s Researcher Kim Chang-bae analyzed, “Large corporations are avoiding investment citing uncertainties of domestic and overseas economic recovery, an investment sentiment slump due to economic democracy related act passage, and the lack of new growth drivers. This year’s facility investment index will turn positive, but this will also be limited to old facility replacement instead of new investment.”
Amid observations that conglomerates will lead the overall facility investment this year again, stagnant facility investment is another contributor to widening the gap between conglomerates and SMEs.
Last month, the total number of employees was posted at 25,684,000, 581,000 up from year-on-year.
It has been growing at over 500,000 people a month for six months in a row. Employment has grown in people in their 50s and the service sector. Therefore, the employment rate for people 15-64 years of age has edged up one percent year-on-year, at 65.4 percent.
Employment augmentation was led by wholesale/retail, health/welfare, and food/accommodations.
However, food/accommodations has been hard hit by the Sewol Tragedy. Job seekers in that segment held off or switched to another industry.
The youth joblessness rate suffered the same fate, posting 10.9 percent in May, breaching the two digit mark in two months after it dropped to 9.9 percent. The youth unemployment is still hovering at a much higher level than the overall joblessness rate (3.9 percent).
Criticism also points out a lack of unemployment measures for the elderly, the population of which is expected to rise exponentially.
The government has put forth employment measures for women with discontinued careers and youth unemployment, but is not doing anything for the elderly, whose employment index seems to be acceptable.
March retail sales climbed up 1.6 percent over the previous month, but it will sag in April on the back of the Sewol ferry disaster.
The retail sales posted a negative growth at -3 percent in Feb. Its aimless fluctuation, together with unfavorable factors, seem to be a sure sign of a consumption slump.