The Korea Institute for Industrial Economics & Trade (KIET) released a report on the outlook of the 12 major industries of South Korea on November 28, 2016. According to the report, international trade conditions are likely to improve to some extent this year based on a recovery of the prices of raw materials and some growth of advanced and emerging economies. Still, external uncertainties are expected to continue to pose a burden on the 12 industries at the same time while the growth of some of the emerging countries, including China, remains stagnant. In addition, the 12 sectors are likely to be negatively affected by the financial market volatility following interest rate hikes by the Fed and Brexit and non-tariff trade barriers for trade protection.
Global oversupply is forecast to continue throughout this year in those industries including shipbuilding, steel, oil refining, textile, consumer electronics and information and communication equipment. In the steel industry, where discussions about restructuring are going on in South Korea, excessive supply is likely to continue as more and more manufacturing facilities are put into operation in emerging countries and a demand-supply imbalance attributable to China becomes increasingly severe. In the shipbuilding sector, the same trend is likely to be witnessed due to excessive facilities, excessive capacity, etc. In the consumer electronics, oil refining and information and communication equipment industries, the same is likely to occur as a result of more intense competition among Chinese companies in global markets. Meanwhile, the semiconductor industry and the display industry are expected to be relatively free from the condition based on supply adjustment by manufacturers and restructuring in China, respectively.
In 2017, the oil refining, food and beverage, information and communication equipment, textile and semiconductor industries are predicted to enjoy better global demand conditions. The development of artificial intelligence (AI), smart cars and the Internet of Things (IoT), which constitute the key parts of the fourth industrial revolution, is forecast to lead to an increase in global demand in the semiconductor industry.
In the shipbuilding, steel and consumer electronics sectors, however, companies are likely to have to continue to compete fiercely amid unfavorable global demand conditions coupled with supply glut.
South Korean companies are expected to keep increasing their production abroad in 2017 and this can have a negative effect on most of the 12 industries. The increase in overseas production is likely to result from an increase in costs and companies’ response to local markets in the sectors including automobile, general machinery, textile, food and beverage, home appliances, information and communication equipment, semiconductor and display. In these industries, South Korean companies are forecast to step up their investment abroad and reduce their investment in facilities in South Korea. When it comes to auto parts and general machinery, though, their business abroad can lead to a greater demand and some other positive effects.
International trade protectionism is likely to intensify this year and the Donald Trump administration’s policy regarding FTA renegotiations and the protection of local industries is poised to negatively affect the major industries of South Korea, steel and shipbuilding in particular. The former is currently under pressure in the form of import restrictions such as countervailing duties and the latter is currently facing a continuous decline in freight traffic volume that is hindering new shipbuilding projects.
All in all, the 12 major industries of South Korea are predicted to increase their exports by 1.3% year on year in 2017 as emerging economies benefit from rebounding raw material and oil prices. Specifically, each of those with the exception of automobile, shipbuilding and consumer electronics is expected to show a positive growth in exports.
In the group of machinery industries, the rate of year-on-year growth is estimated at negative 3.1% with the automobile sector facing a continuous decline in demand in emerging markets and the shipbuilding sector slowing down due to restructuring although the general machinery sector is likely to see a rebound in investment by resource-exporting countries. In the group of materials industries, every segment is expected to show a positive export growth and those of the petrochemical and oil refining industries, which benefit directly from an increase in oil prices, are likely to be particularly significant to lead to an export increase of 4.8% as a whole. In the category of IT sectors, the year-on-year export growth is estimated at 3.2% with consumer electronics likely to become the only shrinking segment for an increase in overseas production and Chinese manufacturers’ increasing presence.
This year, the total output of the 12 industries is expected to grow from a year ago, led by exports from the IT sector, whereas the outputs of the shipbuilding and automobile sectors are likely to continue to fall and that of the materials industry is to remain stagnant. Domestic demands, in contrast, are likely to remain sluggish in all the industries, with the only exception of IT, amid the current economic recession. Those are to decline in the groups of machinery and materials industries owing to the real economic slump, negative consumer sentiments, a decline in the growth of construction investment and a drop in capital expenditure while that in the IT industry group increases based on new types of products such as UHD broadcasting, VR gadgets, SSDs and wearable devices. The total imports of the 12 industries are estimated to increase 2.5% from a year earlier and the imports of the consumer goods industry are to rise 3.5% in spite of the negative consumer sentiments mainly because of polarization of consumption.
The Original Posted by Jung Suk-yee/Business Korea