Government's 'Second Half Gyeonggi Rebound' Outlook Falters... Equipment Investment Drops Most in 11 Years 4 Months (Comprehensive)

Statistics Korea, July Industrial Activity Trends
Production -0.7%, Consumption -3.2%, Investment -8.9%
Slow Rebound in Chinese Economy, Semiconductor Recovery Slows Down
Ministry of Economy and Finance "Steady Recovery Trend Continues"

Last month, production, consumption, and investment indicators all declined simultaneously. This was due to a decrease in passenger car sales following the end of the individual consumption tax reduction and a reduction in operating days caused by a prolonged rainy season, along with sluggish consumer sentiment. Although there was hope for a 'low in the first half, high in the second half' scenario after recording triple increases consecutively in May and June, analyses suggest that the rebound has not occurred as quickly as expected.

According to the July Industrial Activity Trends released by Statistics Korea on the 31st, the indices for total industrial production, retail sales, and facility investment all decreased by 0.7%, 3.2%, and 8.9% respectively compared to the previous month. This is the first time in six months since January this year that all three indicators have declined simultaneously.

Total industrial production fell for the first time in three months since April. After a decline in April (-1.3%), it rose in May (0.7%) and June (0.0%), but shifted to a downward trend in July. Specifically, production in the mining and manufacturing sectors increased in areas such as clothing and fur (28.5%), but decreased in electronic components (-11.2%) and machinery equipment (-7.1%), resulting in a 2.0% decline compared to the previous month. Semiconductor production decreased by 2.3%, marking the first drop in five months since February (-15.5%).

Manufacturing shipments fell by 7.8% compared to the previous month, while inventories increased by 1.6%. The inventory ratio rose by 11.6 percentage points to 123.9%. In the case of semiconductor shipments, a 31.2% decrease caused inventories, which had decreased the previous month, to rise again by 4.0%. Kim Bo-kyung, Economic Trend Statistics Officer at Statistics Korea, explained, "Since 2021, LCD production has increasingly shifted to China, leading to an overall decline in electronic components." Regarding shipments, the expected recovery of the Chinese economy did not materialize as much as anticipated, resulting in a significant rise in the inventory-to-shipment ratio.

Together with semiconductors, the passenger car industry also led the decline in key indicators. Retail sales showed a downward trend across durable goods such as passenger cars (-5.1%), non-durable goods such as food and beverages (-2.1%), and semi-durable goods such as clothing (-3.6%). Notably, durable goods experienced the largest drop since July 2020 (-11.6%). This was due to a 12.3% decrease in passenger car sales, which constitute a significant portion of retail sales. This decline is attributed to the termination of the individual consumption tax flexible rate system as of June 30, which led to a reduction in new car registrations.

Speed of Economic Rebound Falls Short of Expectations... "Recovery Trend Continues"

Kim Bo-kyung, Economic Trend Statistics Officer, Announcing July Consumer Price Trends
Photo by Yonhap News

Facility investment recorded its largest decline in 11 years and 4 months since March 2012 (-12.6%). This was influenced by a reduction in passenger car imports, which led to decreased investment in transportation equipment. The daily average import value of passenger cars dropped sharply from $80.1 million in June to $32 million. During this period, investment in transportation equipment such as automobiles shrank by 22.4%. Additionally, imports of semiconductor manufacturing machinery decreased, causing investment in machinery such as special industrial machinery to fall by 3.6%.

The coincident composite index, which reflects the current economic situation, fell by 0.5 points compared to the previous month. In contrast, the leading composite index, which forecasts future economic conditions, rose by 0.4 points. Although construction orders decreased, inventory circulation indicators and the long- and short-term interest rate spread increased.

Accordingly, although the government had anticipated an economic rebound in the second half of the year, evaluations suggest that the economy is not recovering as quickly as expected. The semiconductor industry, which holds significant weight in the Korean economy, was expected to boom in the second half due to China's economic recovery and the arrival of an upcycle, but improvements are proceeding more slowly than anticipated. In fact, semiconductor production still decreased by 14.8% year-on-year. While this is an improvement compared to January's -33.9%, it marks the 12th consecutive month of decline.

The government diagnosed this as a temporary phenomenon. Officer Kim stated, "The economy appears to be sluggish," but added, "Overall, many temporary factors are reflected." The Ministry of Economy and Finance also noted, "Signs of a rebound in semiconductor export volumes are emerging, service sector recovery continues, and the leading composite index has risen for three consecutive months, indicating that the fundamental recovery trend is ongoing."

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