[Weekly Review] Three Major Economic Indicators Rise Together After 3 Months... Signal of Economic Rebound?

On January 2nd, the first working day of the new year, citizens are walking to work at Gwanghwamun Intersection in Seoul. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Sim Nayoung] Last month, the three major economic indicators?production, consumption, and investment?all rose simultaneously for the first time in three months, leading to interpretations that the economy has hit bottom. The government announced that from this year, free high school education will be expanded to include all 2nd and 3rd-year students. The amount of educational benefit support provided to high-achieving students from low-income families is also expected to increase significantly starting March next year. Last year, the consumer price inflation rate recorded the lowest level since related statistics began to be compiled. Due to concerns over economic recession, consumption did not revive, and inflation remained in the 0% range throughout the year. Last year, Korea’s exports recorded the worst performance in 10 years, prompting the government to set a goal of turning exports positive in the first quarter of this year.

◆Signs of Economic Rebound?

According to the 'November Industrial Activity Trends' released by Statistics Korea on December 30 last year, the seasonally adjusted total industrial production index (excluding agriculture, forestry, and fisheries) increased by 0.4% compared to the previous month. The increase in service industry production, driven by large-scale discount events such as the 'Korea Sale Festa,' led the overall industrial production growth.

The manufacturing production capacity index rose by 1.4% from the previous month, supported by a 9.3% increase in semiconductor production capacity. Retail sales, which indicate consumption trends, increased by 3.0% compared to the previous month. Facility investment last month also rose by 1.1% month-on-month. Although machinery investment slightly decreased by 0.3%, investment in transportation equipment such as aircraft, which tends to fluctuate significantly, increased by 4.6%, influencing the overall rise.

While the coincident index, which reflects the current economic trend, continued to decline, leading indicators that show future economic trends rose for three consecutive months, suggesting that the economy is stabilizing at the bottom. However, industrial production, which reflects the manufacturing sector, decreased for two consecutive months, and the average operating rate of manufacturing plants also continued to decline, indicating that it is too early to expect an economic recovery.

◆Changes Starting This Year

The government published and distributed 'Changes Starting from 2020,' summarizing departmental systems and legal regulations that will change from next year, on December 30 last year. The amount of educational benefit support for high-achieving students from low-income families is also expected to increase significantly starting March next year. Additionally, if a diesel vehicle older than 10 years is scrapped and replaced with a new non-diesel vehicle, 70% of the individual consumption tax will be exempted for six months.

The housing pension can be subscribed to if the older spouse is over 55 years old. For example, subscribing at age 55 for a 300 million KRW house allows receiving a monthly pension of 460,000 KRW for life. If the total amount of pension payments and guarantee fees (including interest) after the subscriber couple’s death is less than the house value, the remaining amount is inherited by the children.

Through the National Participation Budget System, the government will supply eco-friendly agricultural product packages worth approximately 480,000 KRW annually to pregnant women. It will also expand health insurance coverage to include ultrasound examinations of female reproductive organs (uterus and ovaries), chest (breast), and heart, along with the four major severe diseases.

◆Record Low Inflation Last Year

According to the 'December 2019 and Annual Consumer Price Trends' released by Statistics Korea on the 31st of last month, the consumer price index for this year was 104.85 (2015=100), a 0.4% increase compared to the previous year. This is the lowest level since related statistics began to be compiled in 1965.

If low inflation persists for a long time, it can lead to a vicious cycle of weak consumption → reduced production → falling prices, potentially progressing to deflation. The government drew a line on deflation concerns and expects related indicators to improve next year.

The core inflation index, which excludes volatile items such as agricultural products and petroleum products to capture long-term price trends, was also low. The core inflation index rose by 0.9% compared to the previous year, marking the lowest increase in 20 years since 1999 (0.3%).

◆Exports: Recovery but Base Effect

On the 2nd, the Ministry of Trade, Industry and Energy announced that Korea’s exports last year amounted to 542.4 billion USD, a 10.3% decrease compared to the previous year. This is the worst performance in 10 years. The double-digit decline in exports is the first since 2009 (-13.9%), when the global financial crisis occurred. Even if exports recover this year, it is pointed out that this is merely a rebound effect from last year’s poor performance and cannot be considered a true recovery.

Minister Sung Yun-mo of the Ministry of Trade, Industry and Energy set the export rebound point at February this year and pledged to make every effort to achieve positive growth in the first quarter. Sixty percent of export support capabilities, including 240.5 trillion KRW in trade finance and 511.2 billion KRW in export marketing, will be concentrated in the first half of the year. However, given the current trend, even maintaining the status quo would naturally lead to export improvement in the first quarter due to the base effect.

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This content was produced with the assistance of AI translation services.