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Tue, May 17, 2022 | 14:09
Economy
Economy battered by falling output, investment
Posted : 2018-12-28 16:54
Updated : 2018-12-28 18:55
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By Park Hyong-ki

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The economy is showing no signs of improving as key indices measuring industrial production and investment fell right back into deeper negative territory.

The overall industrial production fell 0.7 percent in November from a month earlier, according to Statistics Korea, Friday.

This comes amid a slowdown in both manufacturing and services beset by the global trade war between the United States and China, and the fast hike in the minimum wage, analysts say.

The private sector's investment in equipment and plant expansion in November dropped 5.1 percent, sliding toward a yearly record low of over 7 percent in June.

The main reason was the semiconductor industry led by Samsung Electronics and SK hynix has begun to wind down their investment plan and is looking to slow down supplies on par with a price drop in chips.

Samsung Electronics indicated recently that its chip capacity is expected to drop in 2019 after peaking in 2018.

This has put a downward pressure on industrial production and investment given that the economy has relied heavily on exports of chips, accounting for more than 20 percent of the total outbound shipments.

As feared by Bank of Korea (BOK) Governor Lee Ju-yeol, who wasn't so optimistic about semiconductors backing the economy for the long term, Statistics Korea director Eoh Eun-sun said data showed chips' winning streak is about to be "broken."

However, given the supply-driven industry's strong performance in recent years, the market is unlikely to see a "sudden and abrupt" slowdown in the near future, Eoh added.

Finance Minister Hong Nam-ki said over dinner with the press on Dec. 27 that the new economic team will try to show its commitment and send a signal to "restore trust" in its policies and reduce uncertainties.

"I understand that what the private sector hates most is policy uncertainty. We will push forward to boost trust and predictability in our policy," he said.

The government's recent ordinance to revise the calculation method for the minimum wage has further ignited fierce debate between businesses and workers.

The contentious point is the inclusion of weekends in the payment of wages. For instance, when an employee works from Monday to Friday, they will legally be paid additionally for Saturday, but not for Sunday, which is a day of rest, depending on individuals' five-day workweek schedule.

Analysts doubted this would revive business sentiment and improve the job market.

The central bank's business survey index stood at 71 for December, far below the threshold of 100, and indices measuring the current and future business cycle have been falling simultaneously for six consecutive months.

"The policies are making the labor market more rigid," said Kim Tae-gi, an economist at Dankook University.

Kim Doo-un, an economist at KB Securities, said companies are likely to remain "cautious" in carrying out their investments.

"It would be hard to see a change in the sentiment as long as the government sticks to its existing pro-labor policy," he said.




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