By Lee Hyo-sik
Staff Reporter
The nation's manufacturing sector grew at the fastest pace in 36 years in the second quarter, on the back of strong exports.
This is a major turnaround from a sharp drop in the manufacturing output over the two previous quarters, but market analysts downplayed the upturn as a temporary rebound triggered by the "base effect."
According to the Bank of Korea (BOK) Monday, the combined production of local manufacturers increased 8.2 percent between April and June from the previous quarter, marking the largest quarter-to-quarter growth since the fourth quarter of 1973. Output dropped 11.9 percent in the fourth quarter of last year and 3.4 percent in the first quarter of 2009.
Bolstered by exports and massive fiscal stimulus, Asia's fourth largest economy grew 2.3 percent in the second quarter from the January-March period.
"A sharp increase in manufacturing production is largely attributed to technical rebounds from poor industrial activities three months ago. Unlike the domestic-market services industry, manufacturing sector is heavily influenced by external conditions.
Economists also echoed the central bank's view, saying the output could head downward again toward the year's end unless corporate investment and private consumption here pick up substantially.
"The Korean and other economies have been recovering at a faster pace than initially expected because of massive liquidity injection into the financial sector and other demand-boosting policy measures. The second quarter's manufacturing output is not by a real turnaround in industrial activities and consumption, but by a technical rebound from previous quarters," LG Economic Research Institute managing director Oh Moon-suk said.
Oh cautioned that manufacturing production could fall again in the second half after a brief recovery, stressing the nation should turn its structure into a more services-oriented economy to better shield itself from outside shocks.
"The more advanced the economy is, the greater role the services sector plays. But compared to its income level, Korea's reliance on manufacturing is relatively high. It means the nation is still overly dependent on outbound shipments for growth," he said. In 2008, manufacturing output accounted for 28.1 percent of GDP, slightly down from 28.3 percent in 2000.
Oh said the ratio may continue on an upward trend going forward, as Korea is expected to ride out the current turmoil by shipping more goods overseas, with business investment and consumer spending here remaining sluggish.