“Infre 型 companies went bankrupt” vs “Infre 型 companies went bankrupt”

It is common for businesses to go out of business or go bankrupt during recessions, and we have seen many times in the past
Unlike this “recession 型 corporate bankruptcy,” however, we will experience a lot of “infre 型 corporate bankruptcy” in the future

“Infre 型 enterprise bankruptcy” refers to a phenomenon in which business management deteriorates and goes bankrupt as companies can no longer pass on price increases of products or services to consumers or counterparties despite the potential infre factors

During the recession, of course, if the economy continues to grow at the 低 of 0-1%, consumers’ spending capacity will be extremely contracted, making it very difficult in most cases to pass prices on to the other party, eventually leading companies to go bankrupt

In the case of Japan in the 1990s, Japan, which had experienced a surge in “recession 型 corporate bankruptcy” due to a prolonged economic slump as the real estate bubble burst

Recently, along with the rapid weakening of the yen, Japanese society is very nervous due to the spread of the “infre 型 corporate bankruptcy” in which Japanese companies fail to adapt to the sudden inflation

In Korea, consumers’ real consumption capacity is on the decline despite the chronic surge in inflation due to high interest rates and the prolonged weakening of the won along with rising energy and food prices, and companies that are unable to develop affordable products or lose their ability to cut costs will be forced to go bankrupt or go out of business without hesitation

The recent phenomenon, in which numerous 商街s remain in 空室 for a long time, the number of unsold houses is increasing, and the bankruptcy of construction companies is rapidly increasing, can be seen as “infre 型 company bankruptcy.”

As Korea has already entered an era of low growth, companies that cannot properly face up to the market situation, which has become impossible to pass the burden on consumers completely differently from the past 5-10 percent growth, will eventually be left behind in the market

There will be nothing strange about the collapse of businesses anytime they overlook the extremely difficult situation in which consumers’ spending power is becoming extremely difficult and stick to outdated management practices that rely on past experiences. Can we trust the stability of the “financial system”?

Financial system stress test is an exceptional but possible scenario to understand the financial health of the financial institution in such a crisis

For example, if the unemployment rate increases by X%, if the interest rate increases by X%, if GDP falls by X%, how much will the financial health of financial institutions change?

Financial institutions’ books and accounting are simply premised on normal times and recognised only when losses have actually been realized, and they do not take into account expected losses in the future at all

For example, as of the end of March 2023, insolvent bonds listed on the books of domestic banks accounted for only 0.41% of all loan bonds
However, considering that 3,072 companies, or 13% of the 23,272 corporations subject to external audits, are “zombie companies” that cannot pay back interest expenses with operating profits

It can be seen that the size of insolvent bonds of domestic banks is too small
It should not be overlooked that if the economy slumps, 13% of corporate loans are very likely to be converted directly into insolvent bonds

During the 1997 IMF crisis, “the ratio of bad debt on the bank’s books”
Due to the huge gap between the “actual insolvent bond ratio,” the government eventually responded by investing 150 trillion won in public funds

Regrettably, the gap between the “0.41%” bad debt ratio on the books of local banks and the 13% ratio of zombie companies will likely make the injection of public funds inevitable to ensure banks’ financial soundness in the future, just as it did in the past IMF crisis

Given the challenging economic environment at home and abroad for the time being, the government should conduct stress tests on the financial system as soon as possible under strict standards and, if necessary, hurry to come up with preparations, such as capital increase. U.S. spending capacity that will determine the growth of the Korean economy

Due to Korea’s high household debt ratio, the capacity to boost domestic demand is gradually losing, and we have no choice but to cling to exports, which account for 45% of Korea’s GDP

China and Europe’s economies are entering a state of stagnation for the time being, so I think the only hope is U.S. consumption

The U.S. stock and real estate markets have remained solid despite the Fed’s rate hike, so “net assets in households” have recently turned to an upward trend, which is a relief for us

However, statistics have recently shown that the real income of the middle class, which considers inflationary, has been declining over the past three years, although some think it is the income of the middle class rather than the asset effect of the asset class that determines U.S. consumption

Moreover, it is hard to rule out the possibility that America’s ability to spend to the public will not be better than it is now, but will gradually deteriorate from now on, as the household surplus, which was barely maintained, is predicted to run out around the end of September thanks to the huge amount of aid the U.S. government has pumped in on an astronomical scale

If U.S. consumption slows or falls sharply, the Korean economy’s growth rate in 2024 is likely to turn negative