September Production Down 0.6%, Consumption Down 1.8%, Investment Down 2.5% 'Triple Decline' (Summary)

Export and Manufacturing Slowdown, Consumption Recovery Weakens Due to High Inflation and High Interest Rates

[Asia Economy Sejong=Reporters Kim Hyewon and Kwon Haeyoung] Production, consumption, and investment all declined simultaneously in September. Industrial production plummeted due to disruptions in POSCO’s steel production caused by flooding damage from Typhoon Hinamno, while retail sales and facility investment both decreased on the expenditure side. Exports and manufacturing, which support the Korean economy, showed signs of slowing, and high inflation and high interest rates weakened the recovery in consumption, indicating an overall economic downturn.

According to the “September Industrial Activity Trends” released by Statistics Korea on the 31st, the total industrial production index (seasonally adjusted, excluding agriculture, forestry, and fisheries) stood at 117.0 (2015=100), down 0.6% from the previous month. Total industrial production has declined for three consecutive months following decreases of -0.2% in July and -0.1% in August.

Manufacturing production fell by 1.8%, mainly due to typhoon flooding damage and sluggish semiconductor market conditions. Among manufacturing sectors, production decreased in primary metals (-15.7%), semiconductors (-4.5%), and automobiles (-3.5%). Eo Unseon, Director of Economic Trend Statistics at Statistics Korea, explained, “The flooding damage from Typhoon Hinamno caused major steel mills to halt operations, which had the greatest impact on the manufacturing sector’s poor performance. Semiconductor production also declined due to inventory accumulation caused by China’s lockdown measures and sluggish demand in front-end industries such as IT.” Service sector production also adjusted, decreasing by 0.3%, mainly in wholesale and retail trade.

The retail sales index (seasonally adjusted), which reflects consumption trends, was 120.8 (2015=100), down 1.8%. Consumption had decreased for five consecutive months from March (-0.7%) to July (-0.4%), briefly rebounded in August, but returned to a downward trend after just one month. Sales of durable goods such as passenger cars increased by 5.8%, but sales of nondurable goods like food and beverages (-5%) and semi-durable goods such as clothing (-3.7%) declined. Statistics Korea attributed this to early Chuseok preparations, reduced demand for food ingredients due to increased outdoor activities and dining out, and lower sales of transitional season clothing caused by warmer-than-average weather.

Facility investment decreased by 2.4% from the previous month. Investment in transportation equipment rose by 11.5%, but investment in machinery such as semiconductor manufacturing equipment fell by 6.6%. Construction output remained flat.

The “triple decline” in production, consumption, and investment occurred just two months after July. Director Eo noted, “Manufacturing production was sluggish, and domestic demand also adjusted with declines in service sector production, retail sales, and facility investment, leading to decreases in both production and expenditure. This indicates a somewhat weakened trend in economic recovery or improvement.”

The leading index’s cyclical component, which forecasts future economic conditions, fell for the third consecutive month by 0.1 point to 99.2. Amid ongoing global inflation, the risk of a global economic downturn has increased due to major countries’ interest rate hikes, China’s lockdown measures, and the prolonged Russia-Ukraine war, heightening uncertainty about future economic trends. Domestically, weak export recovery and semiconductor inventory accumulation are obstacles to economic recovery. The consumer price inflation rate remains high in the 5% range, suppressing economic recovery, while the sharp rise in household and corporate loan interest rates poses a major challenge.

Director Eo added, “While the economy is continuing a recovery or improvement trend centered on domestic demand and the service sector, exports and manufacturing are showing signs of slowing, increasing overall uncertainty. Inflation and interest rate hikes may delay the recovery in consumption, so future uncertainty remains significant.”

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