Industrial Indexes Getting Worse
Last month, South Korea’s total industrial output and investment fell together, implying that the South Korean economy’s capabilities on the supply side are deteriorating. These days, its key industries like automobile and shipbuilding, which have significant ripple effects in various material and component industries, are slowing down amid the lack of industrial restructuring and regulatory reform for making up for the slowdown.
Besides, South Korea’s monthly exports are forecast to have dropped last month. This has to do with the base effect related to offshore plant export in April last year, worth US$5.5 billion, and negative factors such as a rapid drop in shipbuilders’ order backlogs and local automakers’ deteriorating competitiveness in the global market. If this pace continues, the South Korean government’s 3% economic growth goal for this year is unlikely to be achieved.
Average manufacturing capacity utilization is one of the indices that indicate the structural weakness of the South Korean economy. Last month, it stood at a nine-year low of 70.3%, down 1.8 percentage points from a month earlier. This means South Korean companies are failing to increase their production due to sluggish demands although the global economy is predicted to show the highest growth since 2011 this year.
An even bigger problem is that the capital investment is showing a negative growth. Last month, it fell 7.8% from a month ago, led by an 11.6% decline in machinery investment. The capital investment fell in five months, showing the steepest decline in 20 months. Although capital investment in transport machinery rose 3.5%, this was caused by an increase in car imports.
The composite leading index for business forecasting is on the decline as well. Last month, the index fell by 0.2 points again to 100.4, continuing to drop for the eighth consecutive month with the exception of January this year. Likewise, the OECD’s composite leading indicator for South Korea dipped below 100 in 38 months in November last year and reached 99.8 in February this year.
Under the circumstances, experts point out the current situation can adversely affect consumption indicators, which are showing no signs of deterioration yet. For instance, the retail sales continued to increase for the third consecutive month in April with a month-on-month increase of 2.7%. Still, the Hyundai Research Institute said that the increase in consumption is unlikely to continue with employment indices worsening along with households’ purchasing power.