Korea’s services sector growth outpaced the manufacturing sector last year, another sign of a sluggish economy continuing.
The manufacturing sector expanded 2.2 percent in 2012, slower than the 2.4 percent growth in the services sector, according to the Bank of Korea.
This is the first time in 11 years that the services sector has grown more than manufacturing, which has traditionally been the main driver of exports, Korea’s main source of growth.
Data also showed that the services sector contributed to economic growth more than manufacturing, adding 1.3 percentage points to 2 percent growth in gross domestic product last year, while manufacturing added 0.6 percentage points to GDP growth.
This is in part attributable to Korean companies operating production facilities abroad rather than at home, and the slowdown in the U.S. and eurozone marred by fiscal-cliff negotiations and a debt crisis, respectively.
Korea’s slow manufacturing activity in January this year, in addition to negative business sentiment, is weighing down growth.
The HSBC purchasing managers’ index, the measure of manufacturing health, dropped to 49.9 last month, from 50.1 in December last year.
“Production volumes have been falling since mid-2012, reflective of sustained weakness in new orders,” the HSBC PMI report said. “January’s survey indicated a marginal fall in new orders received as poor economic conditions had an adverse impact on demand.”
The central bank’s business survey index for February recorded 72, up 2 points from January, but still well below the 100 mark, indicating a bleak outlook. A BSI score above 100 means more businesses are optimistic than pessimistic.
Manufacturing data released by a research unit of the Industrial Bank of Korea on Tuesday showed Korea’s small and medium-sized enterprises’ production contracted by 0.2 percent in December as well.
SME manufacturing has been falling for three consecutive quarters since April 2012, it noted.
“Negative external factors, with slow exports and domestic consumption, have led to a drop in manufacturing,” the IBK report said.
Although signs show the U.S. economy will rebound toward the latter half of this year, a weak Japanese yen is causing consternation among Korean exporters.
Lee Sang-jae, an analyst of Hyundai Securities, said that the market can expect Japan’s currency to depreciate to 100 yen against the dollar this year.
The exchange rate volatility is likely to weigh down on Korean exports, but analysts said the country is expected to maintain a current account surplus this year.
By Park Hyong-ki (
hkp@heraldcorp.com)
