South Korean economy edging out of the doldrums

EconomySouth Korea’s industrial output and facility investment continued to rise in April for the second consecutive month, indicating that the economy, plagued in the first quarter with surprise minus growth, has broken out of its worst phase.

If so, that is good news, given the consensus opinion was that Asia’s fourth-largest economy – also seen as a weather vane of global trade trends – would not see an upturn until the second half.

By the numbers

The National Statistical Office (NSO) announced Friday that the country’s industrial output rose 0.7% in April from the previous month, following a 1.5% gain in March.

Production in mining and manufacturing rose 1.6% due to increased production in the semiconductor and oil refining sectors. Chip production rose 6.5%, while oil refining posted an 11.2% increase. Automobile production also rose 2.5%.

Year on year, mining and manufacturing production also grew 0.7%, shifting from a 0.5% decline in March. The output of cars and chemicals rose 14.2% and 15.3%, respectively.

The average manufacturing capacity utilization rate rose to 72.6%, a 1.0 percentage point rise from a month earlier, marking the second straight month of rises. However, operation rates remain low level, falling short of last year’s 73.5%.

Exports, however, are not out of the doldrums. Manufacturing shipments fell 0.8% while manufacturing inventories rose 2.5%, mainly due to an inventory rise of 15.3% among chip makers. Inventory rates stood at 115.1%, up 3.7% from the previous month.

A rise in inventory rates usually means the economy is not doing well, but in some cases, inventories rise as companies increase production ahead of future sales increases.

“We understand that semiconductor companies have increased their inventories in preparation for the new release of Samsung’s mobile phones and a possible rise in memory chip demand for servers,” an official at the Ministry of Finance told Asia Times.

Production in the service sector rose 0.3% from the previous month, marking the second straight month of increases. Wholesale and retail fell 1.1%, but lodging and restaurant businesses gained 0.3% on a rise in foreign tourists, extending their gains for a second month.

Facility investment rose 4.6% from the previous month for a second consecutive month led by the semiconductor industry.

Construction investment, however, fell 2.8% month on month due to the sluggish real estate market.

The worst is over

“The economy was at its worst in the first quarter, and we expected it to improve gradually in the second and third quarters,” the finance ministry official said. “The April index is in line with this expectation.”

But all is not rosy, and “due to external conditions, it is difficult to look at the economy only with optimism. In particular, we should wait and see the index in May as the trade disputes between the US and China have intensified.”

He noted that the KOSPI stock exchange and consumer sentiment index fell due to the trade war.

Jung Sung-tae, an economist at Samsung Securities, told Asia Times that the economic slowdown was easing. He predicted the economy would rebound strongly in the fourth quarter after moderate improvements in the second and third quarters.

“For now, it seems to be more like a psychological factor than a big impact on the real economy,” Chung said of the trade war. “A prolonged trade dispute will affect the real economy, but we believe that it will end by the third quarter in some way.”