Investment Falls to 8-Year Low
Corporate investment fell to the lowest level in eight years, adding to concern over the economic slowdown.
According to the Bank of Korea, investment in machineries for the first quarter fell by 0.9 percent from the previous year. It is the first drop since 2001, when the first quarter figure fell by 1 percent.
The investment for the first quarter has been gaining each year, growing 0.2 percent in 2002, 8.1 percent in 2005 and 13.5 percent last year. Annual investment in machinery has also increased more than 7 percent during the last few years.
President Lee Myung-bak pledged to form a business-friendly environment, thus luring businesses to expand investment. Corporate investment helps the economy grow and creates jobs. However, a pessimistic outlook on economies both local and global seems to have made businesses reluctant to invest.
Facility investment, including investment in transportation, grew 1.4 percent in the first quarter, markedly falling from the 10.9 percent increase last year. Investment in construction also dropped 1.1 percent this year. According to the National Statistical Office, construction orders, a leading indicator of construction investment, fell 3.9 percent in the first quarter, and 2.5 percent in April, reflecting that investment is not likely to improve in the future.
Some point out that the government's sticking to a weak Korean won policy to help exporters has hampered corporate investment. Faced with soaring oil prices and raw material prices, which became even more expensive here due to the weak local currency, businesses have no room for investing in facilities. A considerable part of the facilities are imported.
``The government said a high won/dollar rate policy would promote export, thus increasing corporate profit, encouraging corporate investment, which would lead to economic recovery and job creation. However, the mechanism did not work. The high exchange rate simply pushed up consumer prices and decreased income, thus hampering consumption and cutting growth,'' said Rep. Park Young-sun of the United Democratic Party in a press release.
Economists warn that sluggish investment is a serious blow to the economy as it mars economic growth and hampers growth potential for the long term.