Factory output hits highest rate in 15 months

A government report released on Thursday showed signs that the Korean economy is recovering, but the government said the improvement is largely due to the base effect from the sluggish economic situation in the past few months.

Industrial output, which contracted for the second straight month, rose 4.8 percent year on year in May and grew 1.7 percent from the previous year, recording the biggest growth in 15 months, according to Statistics Korea on Thursday.

Industrial output in mining and manufacturing increased 2.5 percent in May from a month ago, and that of construction and manufacturing rose 2.9 percent and 2.6 percent each during the same period.

In the manufacturing sector, the output of telecommunications products fell, while those of semiconductors and automobiles increased.

“It appears that both industrial output and domestic consumption improved due to the base effect,” Yoon In-dae, a director at the Ministry of Strategy and Finance, said on Thursday. “I think the uncertainties from Brexit and the ongoing corporate restructuring in Korea might have negative impacts on the labor market and consumer sentiment later on.”

In fact, industrial output has been sluggish this year.

In April, it fell 0.8 percent from the previous month and rose 0.1 percent in the first quarter compared to the same period last year.

In May, facilities investment rose 2.9 percent year on year, indicating companies are still increasing investment in equipment and machinery. Construction investment increased 20.2 percent during the same period.

The Ministry of Strategy and Finance said construction investment is increasing as the local housing industry is revitalizing.

Consumption also improved from the previous month. In April, it fell 0.5 percent compared to March, but it rose 0.6 percent in May from the previous month and 5.1 percent compared to a year ago.

Sales of durable goods like automobiles and semi-durable goods like clothes rose 1.1 percent and 1.2 percent compared to the previous month.

“Consumption rose due to the government’s decisions to designate the following day of Children’s Day as a temporary holiday and to extend the individual consumption tax cut for automobiles until June,” Yoon at the Finance Ministry said.

In fact, sales of cars in Korea rose 20.8 percent in May compared to the previous year. It grew 18.9 percent in March and 5.8 percent in April.

The labor market, on the other hand, remained weak. In May, 261,000 people found new jobs, a slight increase from 252,000 in April, but still short of March’s figure of 300,000.

Exports in May also decreased 6 percent compared to the previous year.

“The government will push the financial stimulus package, including a supplementary budget, in order to boost the local economy while managing various risks in exports and the labor market,” the Finance Ministry said.

On Tuesday, the government released a 20 trillion won ($17 billion) financial stimulus package including a 10 trillion won supplementary budget as an attempt to meet the new economic growth rate goal of 2.8 percent this year. It lowered its prediction from 3.1 percent the same day.

BY KIM YOUNG-NAM [kim.youngnam@joongang.co.kr]