POSCO's headquarters in Seoul / Courtesy of POSCO

By Kim Hyun-bin

Samsung Electronics and LG Electronics have been hit directly by the global economic downturn, and their performances in the fourth quarter of 2022 recorded negative earnings surprises of 70 percent and 90 percent, respectively, from the same period the year before. Their sluggish performance is expected to continue for the sector and industry officials believe other companies in sectors such as steel and petrochemicals could face a domino effect in negative earnings surprises, which could signal an unprecedented crisis for the Korean economy.

The outlook for economic growth is also bleak. The government predicted that the economic growth rate this year would be 1.6 percent. It is the first time in recent years for the rate to fall below 2 percent except for in 2020 in the early days of the pandemic and in 2009 during the global financial crisis.

Major institutions are predicting economic growth rates in the 1 percent range, such as such as the Bank of Korea with 1.7 percent, Korea Development Institute with 1.8 percent and Hana Institute of Finance and Management with 1.8 percent.

"In the fourth quarter, selling and an increase in administrative expenses and non-operating losses such as asset write-off are reflected. So the fourth-quarter results tend to be lower than previously expected," said Yeom Dong-chan, an analyst at Korea Investment & Securities. "As concerns over economic conditions are reflected, the fourth quarter of last year's results may also fall far short of expectations."

The steel industry also took a direct hit as the economic sluggishness slowed demand for construction and home appliances, which are its major businesses. The stagnant economic growth of China, the largest producer and consumer of steel, is also adversely affecting the steel market. As a result, there are concerns that the performance of domestic companies will also be sluggish.

According to FnGuide, a financial information company, the operating profit consensus of POSCO Holdings in the fourth quarter of last year was 786.6 billion won. This is a decrease of 66.8 percent compared to the same period last year. Hyundai Steel is expected to record an operating profit of 185.4 billion won for the fourth quarter, down 76 percent from the same period last year.

Due to the Russia-Ukraine war, international oil prices have soared and manufacturing costs have risen.

According to FnGuide, LG Chem's overall operating profit last year is expected to be 3.61 trillion won, down 30 percent from the previous year. Lotte Chemical is expected to record an operating loss of 88.7 billion won in the fourth quarter of last year and be in the red.

However, the car industry's fourth-quarter performance is expected to be bright after facing a series of bad news last year such as the shortage of automotive semiconductors, which began to ease in the second half of the year.

According to FnGuide, the operating profit for Hyundai Motor in the fourth quarter is expected to be 2.91 trillion won, while Kia's operating profit will reach 2.29 trillion won. If realized, it will increase by 91 percent and 95 percent, respectively, compared to the same period the year before.

The airline industry, such as Korean Air and Asiana Airlines, is also expected to see improved performance compared to the previous year thanks to the normalization of the travel industry.