You are here
South Korea risks repeating Japan's lost decade, AlixPartners says
[SEOUL] South Korea is in danger of falling into a lost economic era like Japan as the nation lacks new growth drivers and is struggling to break out of a prolonged period of slow expansion, according to AlixPartners LLP.
Manufacturers such as shipbuilders and automakers are battling low productivity, high wages and overcapacity, while semiconductors provide an illusion of economic growth, said Yung Chung, Seoul-based managing director of the New York-based consulting firm.
The country is also lagging behind in frontier industries including artificial intelligence, fuel-cell electric vehicles, robotics and bio-pharmaceuticals, he added.
Asia's fourth-largest economy posted a second-straight quarterly decline in corporate capital investment in the three months through September. Preliminary trade data released last week showed exports to China fell for the first time since late 2016.
If the global economy enters a recession, export-dependent Korea could face a crisis as falling external demand combines with a sluggish domestic environment, Mr Chung said in an interview. Not only are companies failing to make headway in newly growing industries, there's little sign of aggressive government policy to lead the way, he said.
Although combined net income of Kospi-listed non-financial companies increased 6.5 per cent in the January-September period, if Samsung Electronics is excluded, it's down 7.7 per cent, Korea Exchange data show.
The auto industry needs major changes with labour unions working collaboratively with management to fix uncompetitive parts of operations, according to Mr Chung.
He's also concerned about an increase in so-called zombie companies, especially in shipbuilding. "If these zombie companies continue to survive with government led financial subsidies, the economic impact could be like the snowball rolling downhill," he said.