Industrial Output Contracts Most in Four Decades
By Kim Jae-kyoung
Staff Reporter
Korea's economic downturn showed signs of deepening Friday, with industrial output falling at a record pace in December in the midst of a worsening current account balance.
According to the National Statistical Office (Office), the nation's industrial production plunged 18.6 percent in December from a year ago. This was the third consecutive month of declines since October and the worst in 40 years since the NSO began tracking these records in January 1970.
Output reduction was most notable in IT and automobile sectors, two key export growth engines. Both deepened production cutbacks in December, with IT down 20.9 percent, and automobiles, 26 percent.
The bleak data shows that rapidly declining external demand is affecting domestic demand, signaling that the worst is not behind Asia's fourth largest economy.
``Since data are worsening at an unexpectedly fast and deep pace, it is not realistic to discuss when the Korean economy will bottom out,'' Citigroup economist Oh Suk-tae told The Korea Times.
``I think we are nearing the bottom but weakness in the overall economy will persist for a while as both international and domestic demand are still in the doldrums,'' he added.
Production growth is expected to slow more sharply than in a normal cycle for a while on the back of high inventory levels combined with the crash in demand.
``We expect industrial output to shrink further for now, with inventory adjustment still in its early stages and demand side conditions at home and abroad staying very weak,'' a market analyst said.
In its latest report, Morgan Stanley forecast that industrial production growth could bottom at minus 20 percent in the first quarter, with an average minus 8 percent growth rate for the full year.
The key culprit behind plunging output is sluggish exports. Slumping exports have led to a rise in inventories and fall in output, which in turn create more employment.
Exports fell 17.4 percent in December from a year ago. They plunged by 28.9 percent to $12.47 billion for the first 20 days of this month, while imports fell by 22.5 percent to $17.04 billion, according to the Korea Customs Service.
The current account surplus narrowed to $860 million in December, a major setback from the $1.91 billion in November. Falling exports are expected to put the account back into the red in January.
According to the Ministry of Knowledge Economy and the Korea International Trade Association (KITA), the nation's trade deficit may amount to $3.8-4 billion this month, roughly equal to the shortfall reported in the first month of 2008.
``There should be some seasonal retreat in January. Both merchandise trade and the service balance often deteriorate in January, and thus the possibility is quite high that Korea's current account position could dip into deficit in January,'' JP Morgan economist Lim Ji-won said.
The country posted a current account deficit of $6.41 billion last year, its first annual shortfall in 11 years since 1997 when the deficit reached $8.3 billion, due to a worsening capital account balance caused by massive capital outflow.
The capital account, which tracks cross-border investments, posted a net outflow of $50.9 billion in 2008, compared with a net inflow of $7.13 billion the previous year. It was the largest capital account net outflow since 1980 when the BOK began to compile related data.