With Semiconductor Inventory Piling Up... Manufacturing Inventory Ratio Hits Highest in 2 Years and 2 Months

July Industrial Activity Trends: Production, Consumption, and Investment All Decline for Three Consecutive Months
Semiconductor Slump Leads to 1.3% Drop in Manufacturing Output... Five Consecutive Months of Consumption Decline First Since 1995 Statistics Began

[Asia Economy Sejong=Reporter Kwon Haeyoung] Last month, production, consumption, and investment all declined simultaneously, marking a 'triple decrease' for the first time in three months, raising concerns about economic slowdown. In particular, due to sluggish demand following China's lockdowns, overall manufacturing production centered on semiconductors decreased, and the inventory ratio surged to its highest level in 2 years and 2 months, indicating that these concerns are gradually becoming a reality.

According to the 'July Industrial Activity Trends' released by Statistics Korea on the 31st, manufacturing production fell by 1.3% compared to the previous month, turning negative for the first time in three months. Although automobile production increased by 1.1%, semiconductor and machinery equipment production decreased by 3.4% each.

Inventories are also accumulating. The manufacturing inventory ratio stood at 125.5%, the highest since May 2020, 2 years and 2 months ago. The semiconductor inventory ratio rose by 12.3% compared to the previous month and soared by 80.0% year-on-year. Conversely, the inventory ratios for automobiles (-6.2%) and petroleum refining (-3.8%) declined compared to the previous month. As inventories piled up, the manufacturing operating rate index also decreased by 1.6% as a consequence.

Oh Unseon, Director of Economic Trend Statistics at Statistics Korea, analyzed, "The rise in inventory ratio is due to the accumulation of semiconductor inventories. Due to the impact of China's lockdown measures, semiconductor demand has stalled, and demand in upstream industries such as smartphones has also weakened, leading to decreased production and shipments and increased inventories."

Consumption appears further contracted amid high inflation and China's economic slowdown. Non-durable and durable goods consumption fell by 1.1% and 0.8%, respectively, causing last month's consumption (-0.3%) to shrink for five consecutive months for the first time since statistics began in 1995. Due to China's economic downturn, cosmetics sales mainly at duty-free shops declined, and in the case of home appliances, rising prices generally dampened consumer sentiment. Director Oh stated, "Retail sales only survey goods consumption and do not represent total consumption. Sectors such as accommodation and restaurants, arts and sports, and leisure are performing well, so overall consumption including services is showing signs of improvement." However, considering that the retail sales index was flat in February and had already decreased by 2.0% in January, actual felt consumption may be more severe than the indicators suggest.

Concerns about the economic outlook are also growing due to rising prices and interest rate hikes. The cyclical component of the Leading Composite Index, which indicates future economic trends, fell below 100 to 99.4, and the August Consumer Sentiment Index (88.8) also remained below 90. This reflects a decline in expectations for economic trends amid growing concerns about economic slowdown due to high-intensity tightening by major countries such as the United States.

An official from the Ministry of Economy and Finance stated, "External difficulties such as global inflation, growth slowdown, and interest rate hikes continue, increasing uncertainty about future economic trends. The slowdown in export growth due to global downward pressure on the economy, semiconductor price declines, and increased manufacturing inventories may act as burdens on the recovery of production."

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