President Yoon Suk Yeol said in a televised briefing Thursday on state affairs that the South Korean economy is on a clear path for recovery and is set to take off in a big way in the future, painting a rosy picture.
The next day, however, Statistics Korea data showed that the country’s industrial output dropped for the third-straight month in July. The reason was the shrinking production in the country’s mainstay industries of semiconductors and automobiles.
Industrial output fell 0.4 percent on-month in July, compared with a 0.1 percent drop the previous month. But it marked a 2.7 percent increase from a year earlier.
The on-year increase is the point that the government stressed as a sign that overall industrial activities remain steady.
But it should be noted that the output in the mining, manufacturing, gas and electricity industries dropped 3.6 percent on-month in July, hurt by an 8 percent decrease in chip production and a 14.4 percent fall in automobile production.
The negative figures involving chips and cars, even month-on-month comparison, cannot be brushed off as a temporary dip since they are widely regarded as the flagship items that work as a bellwether for the overall industries.
In particular, the automobile sector’s output slump marked the biggest in 50 months. Strikes by component makers and lineup repairs are said to have affected the sales of recreational vehicles and mid-sized sedans.
The decline in demand for DRAM and flash memory is said to have undercut the output. Statistics Korea said that the chip sector’s negative figure in July resulted from the higher base in June, claiming that the sectors related to information technology as well as artificial intelligence continue to perform relatively well.
It is questionable whether the base effect can justify the continued fall in industrial output. In addition, retail sales representing private spending slumped by 1.9 percent on-month in July. Even compared with a year earlier, retail sales were down 2.1 percent, illustrating the ongoing concerns that weak domestic demand is a problem that should be resolved to bolster the overall economy.
The only positive news was that facility investment jumped 10.1 percent on-month in July, boosted by the transportation sector that pulled off a 50.5 percent increase, thanks largely to airplane imports.
As for the “temporary dip” claimed by the government, experts warn that policymakers have to take a more cautious approach toward the economic slowdown. After all, the Bank of Korea and the state-run think tank Korea Development Institute revised down their 2024 economic growth by 0.1 percentage point to 2.4 percent and 2.5 percent, respectively -- a move that heralds a slower-than-expected economic activity in general.
The business survey index, compiled by the Federation of Korean Industries, fell to 92.2 for the September outlook, which is below the baseline of 100. It marked a decrease of 4.2 points from 97.1 the previous month.
The FKI said in a statement that the BSI outlook performed well to get close to the baseline, maintaining an upward trend since May, but the combination of a slowing global economy and faltering domestic demand from weaker economic confidence following the tensions in the Middle East dragged the index down.
Weak domestic demand is partly linked to high interest rates, but this is also a tricky issue. It is unclear whether the Bank of Korea can finally slash the benchmark rates in October because of rising housing prices and ballooning household debt.
The Yoon administration also maintains a tight budget operation in pursuit of fiscal soundness, which in turn means it cannot launch massive policy programs designed to revitalize anemic domestic consumption.
Yoon’s overly optimistic comment on the economic outlook may sound encouraging to his staff and supporters. But he should realize that his view is far removed from the reality.
