By Cho Jin-seo
The slowdown in the economy is now official. The Ministry of Strategy and Finance said on Wednesday that the Industrial Production Index decreased by 4.2 percent in October, which was the largest drop in 22 months.
The main reason for the sagging is the sluggish sale of computer chips and cars ― the main export items of Korea ― as they accounted for over 80 percent of the total decrease.
The cool-down of the domestic economy adds one more concern to Korea while external factors such as European debt and North Korean provocations do not help very much.
“The sluggishness of the global PC market has led to a reduction in chip production,” an official from Statistics Korea, the government statistics bureau, said Tuesday during a press briefing. “It seems that the situation is not likely to improve this year, though it is expected to improve in the first half of next year.”
Other indices also showed that the party is almost over. The Producer’s Shipment Index, Industrial Inventory Index and Equipment Investment Index fell by 3.4 percent, 1.2 percent and 9.5 percent, respectively, between September and October. The Composite Leading Index, which predicts future growth, also decreased by 0.7 percent.
Overall, the mining and manufacturing sector has lost 13.5 percent of output in October, compared to the previous month. November’s data will be available in late December.
HSBC analyst Kim Song-yi said it was “surprisingly downbeat activity data.”
“The global restocking bounce has finally come to an end and Korea is feeling the chill,” she said. But she suspected that there were too many seasonal factors involved in the calculation, and recommended to wait for other statistics to be posted, such as the monthly export totals due today.
The finance ministry explained that there was some “base effect” in Tuesday’s figures. During 2008 and 2009, businesses had cut jobs and reduced production to weather the global recession. So it explains why this year’s economic indices looked better when they were compared to last year. For example, the Industrial Production Index grew 13.5 percent when compared to October 2009, even though it shrank by 4.2 percent from the previous month.
Regardless, the local media received the news rather nonchalantly. A reporter of YTN, a TV news channel, summarized the public’s cool reception when he commented live that “the government said that the economic recovery is slowing down; but did we ever have a recovery?”
The jobless rate has remained relatively high since the crisis and firms are holding record amounts of cash in reserve now instead of investing and creating jobs.
Most economists and market analysts predict that Korea’s GDP growth will go down to the natural level of around 4 percent, from this year’s sanguine 6 percent.
The 4-percent growth is not a pessimistic figure and is actually close to the global average. Some other countries are suffering worse predictions than Korea _ one in ten workers in the United States are unemployed, while debt and a fragile banking industry are scaring Ireland, Spain and the whole European Union that backs the countries.
Korea has its own headache, though. On Wednesday, Moody’s, a credit-rating agency, hit a warning signal on the security threat of the Korean peninsula. The press release was Moody’s second report on Korea since last week, when North Korea fired artillery shells at a South Korean island and killed four.
“These provocations, which could threaten peace and stability on the Korean peninsula, underscore what we perceive as a heightened degree of uncertainty from North Korea as it undergoes a dynastic transition in leadership from the second to third generation,” Moody’s analyst Tom Byrne said, though he retained the “A1 stable” rating on the country.
Even if a war is avoided, the economy is to see a less cheery year in 2011 due to sluggish demand of Korean goods abroad. “Most industries will enter a phase of retreat in 2011, from a phase of boom in 2010,” said Hyundai Economic Research Institute in a report published last week. The report said firms in IT, domestic logistics and machinery industries will continue to perform well, while firms in automobile, steel, shipping, energy and chemical industries will see a tough year.
1 | Public transit fares to increase in Seoul and Busan this week |
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