NABO Economic Trends & Issues (No. 86)
Published on December 17, 2019
Published by Macro-Economic Analysis Division of the Economic Analysis Bureau
I. Economic Trends
Currently, the Korean economy continues to suffer declines in the overall real economy in exports, production, and investment. With export growth continuing to decrease by double digits due to sluggish overseas demand in November, dwindling exports led to a fall in production volume and facility investment centering on the manufacturing sector. However, some economic indicators are improving, with the Cyclical Component of Leading Composite Index rising for two consecutive months and the Composite Consumer Sentiment Index higher than the base value of 100. Meanwhile, consumer prices inched up 0.2% YoY in November as the severity of the drop in agricultural and industrial product prices improved. The won-dollar exchange rate fell from the previous month, and the treasury bond yield increased, reflecting expectations for the conclusion of the first round of US-China trade negotiations.
Ⅱ. International Comparison of the Impact of Interest Rate Changes on Private Investment
While government bond yields of major industrialized countries have been on the decline in general, private investment in major and emerging countries has been on the rise. Analyzing the impact of interest rates on private investment through panel data illustrates that interest rates have a statistically significant negative effect on private investment in 32 countries analyzed, including 25 OECD countries. This implies that private investment will expand (diminish) when interest rates fall (rise). The analysis of Korea shows that there is no statistically significant relationship between interest rates and private investment, which may be due to uncertainties in economic and financial conditions and a heavy reliance on investment in internal funds.
Ⅲ. Analysis of the Current Dividend Payout Ratio of Major Countries
Although the number of dividend-distributing corporations and total dividends have increased recently in Korea, the average dividend payout ratio of domestic companies is relatively lower (24.8%) than those of developed countries (50.1%) and emerging countries (36.8%). Analysis of the determinants of dividend propensity in 15 developed and emerging economies from 2008 to 2018 indicates that the dividend payout ratio tends to be high among firms with a large business scale, high profitability, and low capital expenditures in total assets. Given the differences in dividend payout ratios and changes to dividend payout determinants between developed and emerging economies, the dividend payout ratio of Korean companies may change. In Korea, an increase in company size in the future may act as a factor in the expanded dividend payout ratio, but changes to ROE and investment activities may alter the dividend propensity.