Real economy showing signs of falling apart

Owners of small businesses queue up to sign up for emergency loans at a government agency for small merchants in central Seoul, March 25. / Yonhap

Firms' earnings falling; unemployment increasing

By Kim Bo-eun

The impact of the continuing spread of the novel coronavirus worldwide is sinking in for Korean firms, which are filing for payroll subsidies after seeing their earnings worsen in recent months.

According to market tracker FnGuide, 98 out of 116 listed firms, or 84.4 percent of businesses, have seen their earnings outlook downgraded for the first quarter of the year.

Data show the Q1 operating profit for 116 companies was estimated at 18.24 trillion won, Friday, a 19.7 percent fall from the 22.45 trillion won forecast at the end of last year.

Year-on-year, the firms are estimated to see a 10.1 percent fall in operating profit in the first quarter.

Brokerages forecast air carriers and oil refiners will be particularly hard hit, based on travel restrictions and crashing oil prices.

They estimated Friday that Jeju Air and Korean Air will see operating losses of 29.1 billion won and 44 billion won, respectively, in the first quarter. Three months earlier, the consensus had been that the two air carriers would post a respective 16.5 billion won and 98 billion won in operating profit.

Leading refinery SK Innovation will see an estimated operating loss of 205.7 billion won in the first quarter, against a 2019 year-end forecast of a 211.5 billion won operating profit. S-Oil is also estimated to post an operating loss of 144.4 billion won, compared to a 383.7 billion won operating profit forecast for the same period last year.

The rapid spread of the pandemic in the U.S. and major economies in Europe will likely bring down forecasts for the second quarter as well.

“The first quarter will see damage stemming from China, while the second quarter will see exports affected by falling demand in the U.S. and Europe,” Kim Yumi, an economist at Kiwoom Securities, said.

Based on these circumstances, business sentiment for April plunged to an 11-year low, data from the Korea Economic Research Institute showed. The business survey index (BSI) of the top 600 companies by sales stood at 59.3, the lowest since January 2009 when the index was 51.

As business activities falter, an increasing number of companies are filing for government subsidies.

According to data from the labor and finance ministries, 21,213 businesses have filed for payroll subsidies as of March 26. The figure compares with 1,514 that filed for the subsidies last year. The government is subsidizing six months' worth of labor costs for businesses which retain their employees through temporary leave.

The number of people seeking unemployment benefits has also surged ― 107,000 people applied last month, a 33.8 percent increase from the same period last year.

“As Korea is heavily reliant on exports and is a manufacturing powerhouse, it will be hit by the coronavirus pandemic which has restricted cross-border movement,” Sejong University professor Kim Dae-jong said.

“Many businesses will record a deficit in the first quarter of the year, as they are unable to sell goods. This could lead to Korea's growth for the year shrink to 0.5 percent, or even lower.”