Indicators show real economy is slowing down

Fears of a global recession triggered by the European debt crisis have already spilled over to Korea’s real economy, business indicators showed this week.

Not only has productivity fallen in recent months, but companies are cutting back on their investments in production lines as demand shrinks.

According to a report by Statistics Korea, production in both the mining and manufacturing industries dropped 0.7 percent in October from the previous month, after rising 1.2 percent in September on-month.

Output of vehicles, including complete knockdown sets that are assembled into cars overseas, fell 3 percent last month from August, while video and audio production dropped 4.3 percent over the same period.

The decline in auto production is due to a drop in overseas orders as well as falling exports, particularly of gas-guzzling large sedans and sport utility vehicles.

The operating rate at factories also fell 1.8 percentage points from a month earlier to 79.5 percent, the lowest rate since it hit 79.3 percent in January 2010, according to the report.

Though retail sales jumped 0.6 percent last month from September and numbers for the service sector climbed 0.7 percent over the same period, facility investment plunged 12.1 percent. This, the first double-digit drop in almost nine years, came as companies spent less on machinery and transportation equipment.

Few Korean exporters have escaped the impact of high global uncertainty stemming from economic slowdowns in major economies such as the United States and the debt concerns facing euro zone countries.

Additionally, the leading economic index fell 0.4 percentage points from the previous month despite an increase in the volume of construction orders. The index is a barometer of how the economy is performing and a gauge of how it will fare in the near future. “[The leading economic index] fell for the second consecutive month, which reflects the grim economic conditions,” the statistical office said in its release.

Yeom Sang-hoon, a researcher at SK Securities, said that “looking at the leading economic index alone, it is most likely the drop will continue into the first quarter of next year.”

Korea has seen its economic growth slow down recently as the country’s gross domestic product also starts to stagnate.

However, last month’s indicators give greater cause for optimism than was the case in 2010.

According to Statistics Korea, on-year industrial production expanded 6.2 percent last month, marking the 28th straight month of growth in annualized terms since July 2009.

“Although there were some weak numbers in October from the previous month, production was still up from last year,” the office said.

By way of illustration, output of semiconductors and related parts jumped 26.3 percent on-year in October, while automobile production jumped 11.7 percent.

Statistics Korea also noted that the number of new jobs rose from 264,000 in September to 501,000 in October, while the index measuring consumer sentiment edged up to 103 in November from 100 this time last year.

HSBC also released a report yesterday saying that the business indicators are better than three years ago when the country was suffering from the global crisis triggered by the collapse of Lehman Brothers in the U.S.

“The situation is not as dire as in 2008,” the bank said. “The latest surveys conducted by the Bank of Korea and the Federation of Korean Industries also show that the outlook has been steady.”

Nevertheless, activity is slowing down, according to HSBC, which expects the central bank will keep its policy rate at 3.25 percent in its Dec. 8 monetary policy.

The BOK kept interest rates at the same level in October for the fifth straight month as downside risks from the euro zone remain high.

By Lee Eun-joo [angie@joongang.co.kr]