The Bank of Korea: "Manufacturing enters recovery phase from Q2 this year... Risks include China's growth slowdown"

Lee Chang-yong, Governor of the Bank of Korea [Image source=Yonhap News]

The Bank of Korea explained that the manufacturing sector has entered a recovery phase starting from the second quarter of this year and is expected to continue improving. However, it also noted that the pace of recovery could be slower than anticipated due to the slowdown in China's growth.

In the Monetary and Credit Policy Report released on the 14th, the Bank of Korea evaluated the recent manufacturing business cycle in this manner.

According to the Bank of Korea, the domestic economy, which had been sluggish since the second half of last year, has been gradually improving since the second half of this year, and notably, the contribution of manufacturing to growth turned positive this year.

Since manufacturing has a relatively large impact on the business cycle compared to its share of Gross Domestic Product (GDP) in South Korea, the future direction of the manufacturing sector is expected to significantly influence the recovery trend of the Korean economy.

The Bank of Korea explained that based on the manufacturing production cyclical component, the manufacturing sector entered a downturn phase in the fourth quarter of last year but is estimated to have entered a recovery phase from the second quarter of this year.

The Bank of Korea analyzed, "Manufacturing production and shipments sharply contracted after last year but rebounded from the first quarter of this year, continuing the recovery trend. Although the inventory-to-shipment ratio remains high, it is gradually declining compared to its peak."

In particular, the Bank of Korea added that the strength of the manufacturing sector's recovery is relatively moderate compared to past recoveries but is favorable compared to major countries.

The Bank of Korea explained, "The relatively favorable domestic manufacturing sector compared to major countries is mainly due to improvements in the semiconductor sector driven by expanded investment in artificial intelligence (AI). While the non-IT sector continued to experience sluggishness in traditional core industries such as petrochemicals and steel, eco-friendly and new growth industries such as electric vehicles, secondary batteries, shipbuilding, and biotechnology showed favorable performance, sustaining a moderate recovery trend."

Looking ahead, the manufacturing sector is expected to expand its recovery due to the IT sector's rebound and the easing of weak global demand for goods.

This is because the tech cycle, known as a leading indicator of the global manufacturing sector, is rebounding from its low point, and global trade, which shows a high correlation with non-IT manufacturing production, is expected to gradually improve after next year.

The Bank of Korea stated, "However, the likelihood of continued monetary tightening policies in major countries and ongoing concerns about China's slowing growth suggest that the manufacturing sector's recovery may be slower than expected. Additionally, rapid changes in the economic environment, such as the fragmentation of global trade and China's industrial structure advancement, are factors that increase uncertainty in the manufacturing sector's recovery path."

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