BOK Raises This Year's Facility Investment Growth Forecast to 5.7%, More Than Double

"Manufacturing Industry Recovers Rapidly... Growth to Continue Centered on Semiconductors"

[Asia Economy Reporter Eunbyeol Kim] The domestic manufacturing industry, which was hit hard by the novel coronavirus infection (COVID-19), is rapidly recovering in the third quarter, according to an assessment. It is expected that the manufacturing industry, centered on exports, will continue its recovery trend thanks to the improvement in the global economy.

The Bank of Korea presented a forecast of 5.7% growth in facility investment for this year in its economic outlook released on the 26th. This is more than double the 2.6% forecast made in the economic outlook at the end of August.

Although the impact of the COVID-19 resurgence is significant, facility investment has increased as the manufacturing industry shows signs of recovery, mainly in exports. In particular, investments in semiconductors, electric vehicles, and autonomous vehicles are expected to increase. Kim Woong, head of the Bank of Korea’s research department, said, "The IT sector, centered on semiconductors, performed very well this year, and investments will be made mainly in automobiles in the non-IT sector as well. Although we lowered the facility investment forecast for next year, since there was a significant increase this year, it can be seen that a favorable trend will continue."

In particular, semiconductors are evaluated to have benefited from the U.S. sanctions against China’s Huawei. Kim said, "Next year, the spread of 5G smartphones and new product replacement activities will create new demand. Memory semiconductors performed well in the second half of this year, and the non-memory semiconductor market is also improving. Since there are orders being received in advance for next year, good performance is expected."

The Bank of Korea’s upward revision of this year’s growth rate is also due to improvements in manufacturing. While service sector production in the third quarter increased slightly by 0.7% quarter-on-quarter, manufacturing production rebounded sharply by 7.6% from -8.9% in the second quarter. By detailed industry (based on industrial activity trends), production in most non-IT sectors such as automobiles and chemical products, as well as IT sectors like semiconductors and electronic components, turned to significant increases.

The rebound in global trade due to the resumption of economic activities in major advanced countries such as the U.S. and Europe, as well as China, also influenced the recovery of the manufacturing industry. Exports of consumer goods such as automobiles and home appliances to the U.S. and the European Union (EU) showed an increasing trend. Exports to China increased in steel and machinery related to infrastructure investment. The normalization of overseas factories of domestic companies also contributed to the recovery by increasing duty-free exports and related parts exports.

The Bank of Korea analyzed, "Compared to major countries, the manufacturing sector shows less economic slowdown and a faster recovery to pre-crisis levels. This is due to the high competitiveness of the IT sector and an industrial structure with a large manufacturing share, which favorably affected the post-COVID-19 environment such as the activation of non-face-to-face activities and increased consumption centered on goods." Additionally, it added, "Effective response to the spread of infectious diseases also contributed to minimizing production disruptions and aiding the recovery of the manufacturing industry."

Meanwhile, the Bank of Korea raised its growth forecast for this year to -1.1% and for next year to 3.0%, each by 0.2 percentage points compared to previous forecasts. These figures assume that the COVID-19 resurgence will continue through this winter and that localized outbreaks may intermittently occur thereafter. However, if the COVID-19 resurgence subsides more slowly than expected and the global spread of COVID-19 is assumed to calm down only by mid-2022, South Korea’s growth rate for next year is expected to remain around 2.2%.

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