April Production, Consumption, and Investment All Triple Decline... Semiconductor Exports Disrupted by China Lockdown (Comprehensive)

Industrial Activity Trends

[Asia Economy Sejong=Reporter Son Seon-hee] Production, consumption, and investment all decreased in April compared to the previous month. This simultaneous decline in all three categories is the first since February 2020, when the initial COVID-19 outbreak occurred, marking 26 months. The ongoing global supply chain disruptions and rising prices due to the Ukraine crisis and China's lockdown measures have increased economic uncertainty.

According to the 'April Industrial Activity Trends' released by Statistics Korea on the 31st, the total industrial production index (seasonally adjusted, excluding agriculture, forestry, and fisheries) last month was 116.4 (2015=100), down 0.7% from the previous month. After consecutive declines in January (-0.3%) and February (-0.3%), it rebounded in March (1.6%) but returned to a downward trend after just one month. The decline was driven by reduced production in manufacturing (-3.1%), mining and manufacturing (-3.3%), and public administration (-4.3%). Semiconductor production (-3.5%) decreased due to a slowdown in memory semiconductor exports caused by China's lockdown measures, and food production (-5.4%) also declined as demand for household food ingredients dropped with the easing of COVID-19 cases.

The retail sales index (seasonally adjusted), which reflects consumption trends, was 119.7 (2015=100), down 0.2% from the previous month, marking two consecutive months of decline. Facility investment also decreased by 7.5% compared to the previous month. The coincident index of economic indicators, which shows the current economic situation, fell by 0.3 points to 102.1. The leading index, which predicts future economic trends, also dropped by 0.3 points to 99.3.

Oh Un-seon, Director of Economic Trend Statistics at Statistics Korea, said, "Industrial production declined as mining and manufacturing adjusted, and domestic demand indicators such as retail sales and facility investment were somewhat sluggish," adding, "The economic recovery and improvement trend showed signs of stalling."

The main reason for the simultaneous slowdown in production, consumption, and investment last month was China's lockdown measures that lasted more than two months. The disruption in memory semiconductor exports significantly contributed to the decline in mining and manufacturing production, which turned negative for the first time in seven months. Additionally, global concerns about rising prices combined with supply chain disruptions caused consumption and investment to show unstable patterns.

Mining and manufacturing production fell by 3.3% (month-on-month) last month, returning to a decline after seven months. This was due to a decrease (-3.5%) in semiconductor production, including DRAM and flash memory. Semiconductor production had risen for four consecutive months since November last year but has declined for two consecutive months since March (-2.2%), when the full lockdown of Shanghai began.

The average operating rate of manufacturing dropped by 1.3 percentage points to 77.0%. Manufacturing inventories increased by 0.2%, while shipments decreased by 2.3%, raising the inventory ratio by 2.8 percentage points to 117.2% compared to the previous month.

In the investment sector, machinery such as special industrial machines (-9.0%) sharply decreased, causing overall facility investment to shrink by 7.5%. The average daily import value of semiconductor manufacturing equipment last month was $45.9 million, which is less than half of the $106.8 million imported in April last year.

Despite the full lifting of social distancing measures last month, consumption remained sluggish. While sales of semi-durable goods like clothing (7.7%) and durable goods such as passenger cars (0.4%) increased due to more outings, sales of non-durable goods (-3.4%) declined as pharmaceutical sales dropped with the decrease in COVID-19 cases, resulting in an overall consumption decrease of 0.2%. Statistics Korea explained that this was largely due to a base effect from the sharp increase in pharmaceutical sales during the Omicron surge in March. Director Oh noted, "Considering that household consumption such as food and beverages shifted to dining out and service consumption, overall consumption appears to have improved compared to the previous month."

Despite Statistics Korea's analysis, indicators predicting future economic conditions are all declining, increasing concerns about economic slowdown. The coincident index has fallen for two consecutive months, and the leading index has been declining for ten consecutive months. Although factors such as the lifting of social distancing and the execution of supplementary budgets provide some upward support, the ongoing high inflation situation means consumption trends need to be closely monitored.

The Ministry of Economy and Finance stated, "As external risks such as the prolonged Ukraine crisis and China's lockdown measures persist, economic sentiment is weakening, and domestic demand faces uncertainties such as price pressures, creating significant uncertainty in the economic outlook," adding, "We will make every effort to stabilize livelihoods, revitalize the economy, and manage risks."

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