By Kim Jae-kyoung
Staff Reporter
The number of Korean companies going belly up hit its lowest level in history in June, underpinning a glimmer of optimism that a much-awaited economic recovery is in the offing.
However, experts have issued warnings against hasty optimism, stressing that policymakers should not be blinded by individual data as they can be false positives not reflecting the economic big picture.
The Bank of Korea (BOK) reported Sunday that the number of bankrupt enterprises reached 125 last month, down 26 from the previous month, the lowest level since the central bank began compiling related data in January 1990.
That was the sixth consecutive month of declines since last December when the number peaked at 345. The figure was 262 in January, 230 in February, 223 in March and 219 in April.
The number of newly-established firms jumped to 5,392 in June, up 1,363 from the previous month’s 4,029. That was the highest level in nearly four years since it stood at 5,403 in March 2005.
``The continuing fall in bankrupt firms is the result of the government-initiated efforts to roll over loans for smaller firms and the central bank’s massive liquidity supply,’’ BOK financial markets Director-General Min Sung-kee said.
``But these can be taken as signs of economic recovery because economic stimulus measures alone cannot explain the sharp fall in bankrupt firms. The data also suggests that economic activities are improving. I think the trend will continue.’’
However, it appears too optimistic to conclude that the bankruptcy data are green shoots of economic recovery as there are still a lot of small independent businesses about to fall. If the effects of the stimulus measures wane in the second half, the chances are that many of them will go under en masse.
In its latest report, Boston Consulting Group advised policymakers to look beyond economic indicators. It said that many individual indicators can signal false positives and are therefore unreliable, noting that it is dangerous to look at individual economic indicators in isolation, as they sometimes tell only part of the story.
``The key issue is not when the economy will bottom out, but how it will recover. History suggests that a recovery following a global economic recession will be slow,’’ BCG Seoul Office Co-head Steven Chai said.
``The Korean government should set the right expectations about potential scenarios to come in a more balanced view in stating the status of the economy. There is a risk of building too much false hope when doom scenarios should still account for much of the forecasts,’’ he added.
Economic data over the past few months have shown mixed signals. Consumer sentiment and industrial output are showing signs of improvement, while exports and job markets have stayed in the doldrums.
In its latest weekly report, Nomura Securities said that after a sharp rebound in real activity in the second quarter of 2009, momentum should ease in the second half before accelerating in 2010, expecting the BOK to hike rates in the fourth quarter.