South Korea growth slows on crises at Samsung and Hyundai
A MASSIVE recall of Samsung smartphones and strikes at Hyundai Motor took a toll on South Korea’s economy in the third quarter, with the slowest growth in more than a year.
Asia’s fourth-largest economy expanded 2.7 percent on-year in July-September – the weakest pace since the second quarter of 2015 – the central Bank of Korea (BOK) said.
“Growth in manufacturing slowed considerably as halted production of Samsung’s Galaxy Note 7 and strikes at Hyundai Motor hit overall production, consumption and exports of the auto and smartphone industries,” said Chung Kyu-il, a BOK director.
“Losses linked with the Note 7 ... may have further impact on the fourth-quarter growth as well,” he said. The BOK estimates this year’s growth outlook at 2.7pc.
Samsung – the world’s top smartphone maker and the South’s biggest firm by value accounting for about 17pc of GDP – announced the recall of 2.5 million Note 7s after reports of the devices catching fire.
When replacement phones also started burning up, the company opted to take a multi-billion-dollar profit hit and scrap the high-end smartphone altogether.
Tens of thousands of workers at Hyundai – the South’s top automaker – staged full or partial strikes for several weeks through July to October demanding higher wages.
The firm estimated the loss caused by the actions at more than 3 trillion won (US$2.6 billion).
South Korea has been struggling to keep its economy afloat as it is buffeted by the global economic slowdown, with the central bank keeping its key interest rate at a record low in a bid to spur domestic spending.
The BOK earlier this month cut the country’s growth outlook for 2017 to 2.8pc from 2.9pc, having considered the potential impact of the Samsung’s recall crisis.
South Korea’s economy expanded a disappointing 2.6pc last year – the lowest since 2012.
Meanwhie, a South Korean law firm said it expected thousands more to join a class-action lawsuit seeking compensation from Samsung over its combusting Galaxy Note 7 smartphones.
Seoul based Harvest Law filed the initial suit on October 24 on behalf of 527 Note 7 buyers – demanding 500,000 won ($440) per plaintiff for time and effort lost during a chaotic recall process that turned into a PR nightmare for the world’s largest smartphone maker.
Although the sums involved – even when accumulated – are tiny for a giant like Samsung, the lawsuit illustrates the dent the Note 7 fiasco has made in the prestige of a company used to be being treated as corporate royalty in South Korea.
Its new-found vulnerability was further underlined this week by the decision of a South Korean investment advisory firm to recommend shareholders vote against the nomination to the Samsung board of vice chair JY Lee – the family-run conglomerate’s heir apparent.
Samsung offered Note 7 owners a full refund or an exchange for a different Samsung phone as well as a 30,000 won ($26) gift card. –