By Kim Jae-won
Rising inflationary pressure and low manufacturing orders hurt the Korean economy last month, which was already struggling to combat a blizzard of bad data highlighted by decreased exports and weak domestic demand, official figures showed Tuesday.
Economists are urging policymakers to take more aggressive action, including cutting interest rates as soon as possible, to boost the economy and guard against downside risks.
According to the Ministry of Strategy and Finance, the country’s consumer price index rose 2 percent in September from a year ago, quickening from the 1.2 percent gain tallied in the previous month.
Prices of vegetables, as crops were hard-hit by typhoons and other extreme weather conditions, surged 27.4 percent last month from the previous one, strengthening the squeeze on low-income families. Energy costs also put upward pressure on consumer prices with gasoline and diesel prices jumping 4 and 5 percent respectively from a year earlier, the report showed.
After typhoons damaged agricultural produce, Korea’s manufacturers were cornered by a sharp decline in new orders. According to a monthly survey by HSBC, Korea’s purchasing managers’ index (PMI) fell to 45.7 in September, hitting the lowest point for 43 months since February 2009.
The PMI is an index that measures the health of a country’s manufacturing sector. A reading of 50 or above represents expansion from the previous month while a reading of below 50 represents a contraction.
“Manufacturers are running out of steam in Korea. Without a response from policymakers soon, Korean growth may face further downside risks,” said Ronald Man, an economist at HSBC.
“The decline in new orders was much steeper than that recorded for new export orders, as shown by the HSBC PMI indices. This suggests that the deterioration in domestic demand may be sharper than external conditions, calling for greater support from policymakers to sustain activity at home,” Man explained.
A recent report by the staterun Industrial Bank of Korea (IBK) echoed the British banking giant. IBK said that Korea’s production index from smalland medium-sized enterprises (SMEs) marked 119.3 in August, down 1.3 percent from a month ago, decreasing for five consecutive months since April.
The SME production index posted a 2.2 percent decline compared to the same month last year. New orders and profitability dropped 8.5 percent and 3.4 percent respectively during the same period from a year ago.
“A decline in production at SMEs seems to be due to weak exports and strikes at automakers. Economic downturns in advanced countries affect Korea’s small- and medium- sized manufactures,” said an official of IBK’s in-house research center.
The data came a few days later following its current account figures which sharply narrowed in August. The current account surplus reached $2.36 billion at the time, down from a revised $6.14 billion the previous month, according to the Bank of Korea.
The August figure marked the smallest surplus since April when it amounted to $1.73 billion.
The surplus reduced from July when the current account surplus hit a new high as imports fell at a steeper pace than exports amid the eurozone debt crisis.