Industrial Production and Consumption Both Decline for the First Time in Over Two Years... "Economic Turning Point Approaching" (Comprehensive)

[Asia Economy Sejong=Reporter Kim Hyewon] Industrial production and consumption both declined in January. This is the first time in 1 year and 10 months since March 2020 that production and spending have decreased simultaneously. In particular, consumption fell by nearly 2% compared to the previous month, marking the largest drop since July 2020.

According to the "January Industrial Activity Trends" released by Statistics Korea on the 2nd, the index of total industrial production (seasonally adjusted, excluding agriculture, forestry, and fisheries) was 115.8 (2015=100), down 0.3% from the previous month.

Total industrial production turned to a slight decline after rebounding in November last year for three months. Production increased in construction (0.5%) and mining and manufacturing (0.2%), but decreased in public administration (-3.2%) and services (-0.3%).

Production in finance and insurance decreased by 2.7% due to reduced trading of financial products such as stocks and sluggish loans, and production in professional, scientific, and technical services also declined by 2.5%. However, despite the continued spread of the COVID-19 Omicron variant, production increased in representative affected sectors such as accommodation and food services (2.0%) and arts, sports, and leisure (5.4%).

Manufacturing, which accounts for a significant portion of mining and manufacturing production, increased by 0.1% due to growth in semiconductors (6.1%) and automobiles (3.2%) influenced by export growth. The average operating rate of manufacturing was 78.3%, the highest in nine years since January 2013 (79.0%).

The retail sales index (seasonally adjusted), which indicates consumption trends, was 120.8 (2015=100), down 1.9% from the previous month. This is the largest decline since July last year (-5.6%). The decrease was largely due to reduced sales of passenger cars and other durable goods (-6.0%) caused by a shortage of automotive semiconductors, decreased imported car sales, and new car line construction. Sales of semi-durable goods such as clothing also declined by 3.4% due to warmer-than-average daytime temperatures. The government also noted that the 2.2% increase in retail sales in the previous month acted as a base effect. Facility investment increased by 2.5%, and construction performance rose by 0.5% respectively.

A noteworthy point this time is that indicators predicting the current and future economy are meeting at opposite extremes. The leading index cyclical component (100.1), which gauges future economic conditions, has been declining for seven consecutive months since July last year, whereas the coincident index cyclical component, representing the current economy, rose by 0.6 points to 102.4, the highest level in 14 years. The leading index cyclical component had declined for nine consecutive months from June 2018 to February 2019, marking the longest downward trend in 2 years and 11 months. Eo Unseon, Director of Economic Trend Statistics at Statistics Korea, interpreted this as "an experience-based indication that the economy is approaching a turning point."

The government evaluated that although this indicator was partially adjusted due to base effects, the economic recovery trend is being maintained. Signals indicate that the economy is reaching a turning point, but it is not yet judged that the recovery trend has been broken. Director Eo said, "In January, service production and retail sales declined, showing a slight pause in the economic recovery trend, but exports remain solid and there are positive factors in the semiconductor industry," adding, "Considering that the coincident index cyclical component continues its upward trend, it is judged that the economic recovery trend has not been broken."

However, there is an analysis that the situation is difficult to predict due to increased external uncertainties such as the Ukraine crisis. Hong Namgi, Deputy Prime Minister and Minister of Economy and Finance, said on Facebook, "Due to the recent Russian invasion of Ukraine and the realization of strong sanctions by major Western countries, the ripple effects on the real economy and financial markets, the spread of energy and raw material-driven inflation, the decline in consumer sentiment due to the spread of Omicron, and the possibility of major countries shifting monetary policies, domestic and international uncertainties are expanding, requiring special vigilance and tension."

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