Economic Indices
Some economic indices are showing signs of turnaround. The quarter-on-quarter real GDP growth rate topped 1% for the first time in nine quarters in Q2, and the industrial output index is showing a positive sign as well. Nevertheless, the picture is still not that rosy in some sectors. The views of the government and private-sector economists are mixed, too.
Views of Economists are Split
According to the data published on July 30 by Statistics Korea, the mining industry production increased 0.4% from a month earlier in June. Between April and May, the output had decreased by 0.1%. Mining industry production data is one of the most frequently quoted indices, covering the manufacturing, mining, electrical, gas and water supply sectors.
However, the overall industrial output including service industry production declined by 0.3% during the same period, due to sluggish performance in the service and public administration sectors. In particular, service industry output fell by 0.1% from a quarter ago despite a new housing market policy package that was made available on April 1 to stimulate the real estate lease business.
The indices on the demand side are sending mixed signals as well. For example, the month-on-month retail sales growth rate, which had been negative 0.6% in April and 0% in May, reached 0.9% in June thanks to a rise in the sale of durable goods such as automobiles. Some experts are pointing out that these numbers are misleading, though. According to them, the government had cut the special consumption tax rate in Q4 last year to result in decreased consumption in Q1 this year, and the recent increase in the retail sales is attributed to the base effect. This is evidenced by the recovery in automobile sales in Q2. During the period, consumers spent less money in department stores while spending more in major supermarkets, which means they are tightening their purse strings.
Capital expenditure recorded a 4.5% growth between May and June but declined by 7.8% compared to the same month last year. Local builders received a less-than-expected amount of construction orders, too.
Under the circumstances, the Bank of Korea and Statistics Korea are coming up with mixed data, which makes business forecasting more difficult. For instance, the central bank has recently announced that production in the manufacturing sector increased 0.8% between Q1 and Q2, 2013. Meanwhile, it dropped by 1.5% according to the statistical office’s data.
Private-sector Experts are Rather Skeptical
The government welcomed the news about GDP growth rate and mining industry production, saying that its economic stimulus efforts are bearing fruit. “The recovery momentum is spreading as the indices are improving in most sectors excluding the service industry and public administration,” said the Ministry of Strategy and Finance, adding, “We need to also focus on the fact that the cycle of leading economic indicators has posted growth for the third consecutive month as well.”
On the contrary, private-sector economists are taking a cautious approach. “It is too early to mention an economic rebound based only on second quarter data,” Korea Investment & Securities research analyst Jeon Min-kyu remarked, continuing, “The industrial output index is characterized by its high volatility and low reliability, and the hard fact is that Korea’s current industrial output is not much different from two years ago.” As a matter of fact, its industrial production index edged up just by 0.2 points from 106.6 to 106.8 between June 2011 and June 2013.
“Economic recovery is impossible without capital expenditures, but the current situation is not good, as exporters are going through hard times,” added Park Seong-wook, a researcher at the Korea Institute of Finance. He emphasized, “In the end, the key is how fast advanced economies make a rebound.”