Sunnier outlook for economy as output recovers

After an arctic chill blew through the domestic market earlier this year, it seems spring has finally arrived as business and consumer confidence picked up and February’s industrial output soared, with manufacturing and mining reaching their highest levels in nearly six and a half years.

But winter’s clouds still hang in the sky, darkening the prospects of a full recovery; the recent growth was mostly driven by sales of new Samsung and LG smartphones, which will likely taper off in the coming months. And while durable good sales have gone up, nondurable sales remain weak as investments continue to fall.

According to the Bank of Korea (BOK) on Thursday, the business survey index (BSI), a gauge for measuring how local manufacturers feel about the economy, stood at 68 in March, up five points from February.

That improvement may sound like a boon, but not when one considers the fact that anything under 100 indicates there are more companies that negatively view economic conditions than there are companies with positive outlooks.

Nevertheless, this rise in the index is encouraging, as it is the first time in five months confidence has improved.

“Owing to the rebounds in international oil prices, petrochemical companies’ profits on valuation of inventories increased,” said Park Seong-bin, head of the corporate statistics team at the central bank. “The launch of new smartphones also boosted demand for parts from manufacturing firms.”

Exporters’ BSI climbed seven points to 70, signaling a recovery in the country’s export sector, too.

Consumers also seemed to have a sunnier outlook about the economy in March. The BOK’s consumer sentiment index (CSI) posted 100, rising for the first time in four months.

“Concerns about economic recovery have been slightly eased, considering the increase in the consumer sentiment index and decreased falls in exports,” BOK Gov. Lee Ju-yeol said at a press conference on Wednesday.

Such improvement stems from February’s better industrial performances, which included 2.4 percent year-on-year growth in overall industrial output and 0.8 percent growth over the previous month, according to the Ministry of Strategy and Finance and Statistics Korea on Thursday.

Mining and manufacturing industries proved to be star performers, as their output in February grew at the fastest pace in nearly six and a half years, at 3.3 percent, thanks largely to the recently launched smartphones, including Samsung’s Galaxy S7 and LG’s G5.

“Semiconductor products like flash memory output rose significantly in February as local smartphone manufacturers launched their new models one after another in March,” said Kim Kwang-sup, director general of economic statistics at Statistics Korea.

The service sector advanced 0.3 percent compared to the month before, growing 2.6 percent year on year.

However, business investment continued to shrink, and facility investment dipped 6.8 percent in February compared to January, falling 7.5 percent year on year.

Overall retail sales rose 3.1 percent annually thanks to the 3.6 percent growth in durable goods sales like automobiles, as the government reimplemented lower taxes on individual consumption, a plan that came to a close at the end of last year.

Meanwhile, sales of nondurable goods like food and beverages continued to fall.

“We expect Korean economic data will turn out better in March since the nation’s exports have started to improve,” said Yoon In-dae, director for economic analysis at the Finance Ministry. “Both the CSI and BSI have improved for the first time in five months, and we believe this will make a positive impact on the local economy.”

The ministry plans to maintain its recovery momentum by implementing regulation-free zones in May at the earliest to help businesses increase investment and create more jobs, the official added.

BY SONG SU-HYUN, KIM YOUNG-NAM [song.suhyun@joongang.co.kr]