Production, consumption and investment ‘triple reduction’ again in two months… Concerns about insolvency due to steep rise in corporate debt [한강로 경제브리핑]

In September of this year, a ‘triple decrease’ phenomenon occurred, in which production, consumption, and investment decreased all at once. It’s been two months since last July. Although the overall recovery trend has been maintained in the third quarter, the government has made a diagnosis that there is high uncertainty in the future.

Eo Woon-seon, director of economic trend statistics at Statistics Korea, announces industrial activity trends for September 2022 at the government complex in Sejong, Sejong, on the 31st. yunhap news

All-industrial production fell for three consecutive months from July

According to the industrial activity trend announced by the National Statistical Office on the 31st, the index of all industrial production (excluding seasonal adjustments and agriculture, forestry and fisheries) in September was 117.0 (2015 = 100), down 0.6% from the previous month. All industrial production continued to decline for three consecutive months following July (-0.2%) and August (-0.1%).

By industry, the mining industry (-1.8%) and the service industry (-0.3%) were sluggish. The mining sector increased in mining (3.5%), but decreased in manufacturing (-1.8%) and electricity and gas (-2.4%). In particular, in the manufacturing industry, primary metals (-15.7%), semiconductors (-4.5%), and automobiles (-3.5%) showed a downward trend for the third month in a row. Production in the service industry also decreased by 0.3% overall as the wholesale and retail industry (-2.1%) and health and social welfare (-1.0%) declined.

Consumption also declined by 1.8% in September, failing to continue its upward trend in August (4.4%). This was influenced by the base effect due to the rush of holiday demand in August ahead of the early Chuseok (September 10), and the decrease in sales of seasonal clothing due to warm weather.

Facility investment fell 2.4% from the previous month. This is because investment in transportation equipment (11.5%) increased, but investment in machinery (-6.6%) such as special industrial machinery decreased.

The economic forecast ‘leading index cyclical value’ also fell for three consecutive months.

The coincident index, which indicates the current economy, rose 0.1 point from the previous month to 102.4. The Ministry of Strategy and Finance said, “There is a concern that the impact of the disruption in steel production due to typhoon damage, weakening export recovery, and accumulation of semiconductor inventories will become a burden in the future. .

Meanwhile, while the ratio of household debt to gross domestic product (GDP) in Korea ranks first among major countries, corporate debt is also increasing rapidly, raising concerns about insolvency. According to the World Debt Report released by the International Finance Association (IIF) in the second quarter of this year, the household debt-to-GDP ratio of 35 countries (the euro area is a single statistic), Korea had the highest rate of 102.2%. Although it decreased by 3.0 percentage points from the same period of the previous year (105.2%), Korea was the only country with household debt exceeding GDP among the surveyed countries.

The debt-to-GDP ratio of Korean non-financial companies was 117.9% in the second quarter of this year, the fourth highest after Hong Kong (279.8%), Singapore (161.9%) and China (157.1%). It jumped three steps from 7th place in the previous quarter (116.8%). In particular, the increase in corporate debt ratio in Korea over the past year was 6.2 percentage points (111.7 → 117.9%), ranking second in the world after Vietnam (+7.3 percentage points).

photo = Yonhap News

◆Government is struggling to stabilize the bond market… Will the financial tightness come to an end?

There are signs of a gradual return of funds to the domestic bond market, which has caused a hardening of money due to the ‘Legoland incident’. It is evaluated that the worst situation has been overcome due to the government’s liquidity supply measures. However, market variables such as interest rate hikes by the US Federal Reserve (Fed) are still in the situation.

According to the financial investment industry, the demand for corporate bonds worth 150 billion won by Kyobo Securities on the 28th showed that the demand was more than double the target amount. Kyobo Securities had planned to raise 120 billion won for one-year corporate bonds and 30 billion won for corporate bonds with a one-year and six-month maturity. As a result of forecasting the demand, it secured 333 billion won for one-year maturity and 33 billion won for one-year and six-month corporate bonds. As more than expected funds flowed, Kyobo Securities decided to increase the size of bonds to a total of 296 billion won, including 236 billion won with a one-year maturity and 33 billion won with a one-year and six-month maturity.

In the market, there are hopeful observations thanks to the government’s liquidity supply. Han Gwang-yeol, a researcher at NH Investment & Securities, said in a report on the same day, “The excessively high concerns are expected to gradually subside as liquidity is supplied to the short-term money market through the emergency support policy of the financial authorities.”

The government is also making every effort to stabilize the market through successive measures. The next day, Kim Joo-hyeon, chairman of the Financial Services Commission, meets with the five major financial holding companies at the Bank Federation in Jung-gu, Seoul. This meeting was prepared to order the financial holding company’s own efforts to calm the uncertainty in the money market that has spread due to the Legoland incident. As a detailed implementation plan, the financial holding company is expected to pursue measures such as the purchase of commercial papers (CP) and electronic short-term bonds (flyer bonds), and reduction of issuance of bank bonds. In addition, measures to supply liquidity in the short-term money market are discussed, such as financial support from securities companies through the purchase of repurchase contingent bonds (RP).

Although the government has operated emergency liquidity supply programs such as the bond market stabilization fund (bond fund) one after another, it is fundamentally due to the decision to reduce the volume of high-quality bonds such as KEPCO corporate bonds and bank bonds, which have recently become a ‘black hole’ in the market. done. The financial authorities believe that if the amount of public bonds, including KEPCO, cannot be reduced, the bond market will inevitably remain unsettled.

Market uncertainty remains… 3-year KTB yield 7.3bp↑

Financial markets remain uncertain. The 3-month (91-day) maturity CP rate recorded 4.63% on the same day, up 4bp (1bp=0.01%) from the previous trading day. In the bond market, the yield of the 3-year government bond closed at 4.185%, up 7.3bp from the previous trading day, and the 3-year corporate bond (non-guaranteed AA-), which once exceeded the interest rate of 6% in the morning, rose 9.3bp and closed at 5.580%.

The rise in domestic bond yields is analyzed to be attributable to the effect of rising US bond yields. In the New York bond market on the 28th (local time), the yield on the two-year U.S. Treasury bond exceeded 4.4% and the yield on the 10-year bond exceeded 4.0%. Ahead of the US Federal Reserve’s Federal Open Market Committee (FOMC) meeting (November 1-2), concerns in the bond market are showing signs of easing.

When interest rates rise, bond prices generally fall. In the market, the prevailing view is that financial market movements will ultimately be determined by how the Fed’s future monetary policy is presented at the FOMC. Kim Sang-hoon, a researcher at Shinhan Investment & Securities, said, “It doesn’t seem like an environment where big changes are condensed into one day.”

By September of this year, national tax revenue increased by 43 trillion won from a year ago

It was found that national tax revenue increased by more than 43 trillion won from a year earlier until September this year.

According to the ‘September National Tax Income Status’ announced by the Ministry of Strategy and Finance, the cumulative national tax revenue from January to September this year was 317.6 trillion won, an increase of 43.1 trillion won (15.7%) from the same period of the previous year.

By tax category, income tax increased by 11.9 trillion won (13.6%) from a year ago as 98.7 trillion won was cleared. The Ministry of Strategy and Finance explained that the recent recovery in employment has led to an increase in tax revenue, mainly from wage and salary income tax and global income tax.

Corporate tax collected from January to September was 95.7 trillion won, up 30.6 trillion won (46.9%) from the same period of the previous year thanks to improved corporate performance. Value-added tax (61.1 trillion won) also increased by 4.5 trillion won (8.0%) due to increased consumption and imports. The comprehensive real estate tax was 2.1 trillion won, an increase of 900 billion won (82.1%) from a year ago. Tariffs increased by 1.9 trillion won (29.2%) from the same period last year to 8.2 trillion won due to the increase in the won-dollar exchange rate and imports.

On the other hand, the securities transaction tax was only eliminated by 5.1 trillion won, down 3 trillion won (-36.6%) from a year ago. Transportation, energy, and environment tax revenue (8.7 trillion won) also fell by 4.4 trillion won (-33.5%) due to the effect of lowering the fuel tax.

The progress rate of tax revenue, which is the ratio of revenue to the annual target, was 80.1% based on the second supplementary budget (additional budget). This is 1.6 percentage points higher than the average of the last five years (excluding maximum and minimum). Based on this, the government expects to be able to easily achieve the target of this year’s revenue budget of 396.6 trillion won by the end of the year.

Reporter Lee Kang-jin jin@segye.com

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