Economic output recovers, but with uncertainty

The Korean economy is recovering compared to the previous year, but the government warned that the improvement will be limited due to uncertainties both at home and overseas, such as Brexit and ongoing corporate restructuring in the second half of this year, a government report released on Friday shows.

Overall industrial output in June rose 4.8 percent year-on-year, largely due to the construction sector, according to Statistics Korea.

“It appears that both industrial output and domestic consumption improved due to the extended individual tax cuts for automobiles and the government policies,” said Yoon In-dae, a director at the Ministry of Strategy and Finance, “including the early execution of government spending.”

In fact, industrial output in construction rose 3.1 percent and that of service increased 5.4 percent year-on-year. Industrial output in mining and manufacturing, on the other hand, only rose 0.8 percent during the same period and fell 0.2 percent compared to the previous month.

The Finance Ministry said the month-on-month output in the manufacturing sector dropped due to the base effect from the huge gain in May (2.7 percent) and due to the automobile, steel and shipbuilding industries that have cut down their production.

In the service sector, finance and insurance-related output rose.

In June, facilities investment rose 2 percent year-on-year and 4.5 percent month-on-month, indicating companies are still increasing investment in equipment and machinery.

Consumption also improved from the previous month. In June, it rose 8.9 percent compared to the previous year and 1 percent compared to the previous month. Sales of durable goods like automobiles rose 13.5 percent year-on-year, and that of non-durable goods like food products increased 5.2 percent and semi-durable goods like clothes increased by 11.9 percent.

“Sales of automobiles rose significantly in June, as the extended individual consumption tax cuts for automobiles came to an end in the same month,” said Yoon at the Finance Ministry. In fact, automobiles’ domestic sales rose 24.1 percent year-on-year in June, following the 20.8 percent increase in May.

Despite these positive economic signs, the government showed concerns for the second half of this year as uncertainties such as the Brexit and corporate restructuring continue to rise.

“The end of individual tax cuts for automobiles and strikes planned by labor unions in the automobile industry might have negative impacts on the domestic consumption and industrial outputs later this year,” said Yoon. “And the Brexit and corporate restructuring might pull down the domestic economy in general, as well. The government will monitor all this thoroughly to minimize the impacts coming from various areas.”

In fact, sales of automobiles have already decreased significantly in July. From July 1 to 25, the domestic sales fell 11.2 percent compared to the previous year.

Meanwhile, industrial outputs for the second quarter of this year rose 1.4 percent compared to a year ago. Consumption rose 2.7 percent and facilities investments increased 6.2 percent during the same period.

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