Output, investment and consumption all fall in February

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Output, investment and consumption all fall in February

While the Moon Jae-in government has been aggressively supporting the economy, economic indicators suggest the efforts are failing to have the desired effect.

Weakness is across the board.


Not only did manufacturing and mining industrial output decline in February and investment continue to fall, but even consumption - the government’s last line of defense - has taken a hit. It dropped for the first time in a year and a half.

In fact, consumption declined at the fastest rate in four years.

According to Statistics Korea on Friday, the nation’s overall industrial output in February dropped 1.4 percent year on year. It was the first time since September last year that overall output dropped.

Output in mining and manufacturing declined 2.7 percent, the sharpest decline since September 2018, when it fell more than 6 percent.

Manufacturing output fell 2.5 percent year on year, while it was down 2.6 percent from the previous month. The year-on-year drop is the fastest since last September, when it fell 7 percent.

The manufacturing operating ratio fell 2.3 percentage points year on year to 71.2 percent. When compared to the previous month, it was down 2.7 percent. It is the lowest operating ratio since December 2017.

Statistics Korea said weak automobile and semiconductor output was the primary reason for the decline in manufacturing output.

In year-on-year terms, semiconductor output rose 5 percent, while automobile output was up 2.6 percent. Machinery equipment output fell 12.3 percent, while electronics parts output declined 12.7 percent.

In month-on-month terms, the output of automobiles was down 3.2 percent. Semiconductor output fell 2 percent.

Facility investment continued to fall in February.

The figure last month dropped 26.9 percent compared to the same period the previous year, the biggest fall since 2009. It fell 17 percent in January.

When compared to a year ago, investment in machinery was down 29 percent, faster than the 22 percent decline in January, while investment in logistics plummeted 20.3 percent, compared with a 0.1 percent dip in January.

The biggest concern is the drop in consumption. The government has counted on that part of the economy as manufacturing and investment lag.

Consumption in February was down 2 percent compared to a year ago. This is the first decline in nearly a year and a half. The last time consumption dropped was when it slipped 0.4 percent in October 2017. The February drop was the sharpest in four years, when it fell 2.3 percent year on year in January 2015.

Consumption at major discount stores, such as Lotte Mart and Emart, has fallen 14 percent, an about face from January’s 13 percent increase. It was the sharpest drop since October last year, when it fell 13.4 percent. Smaller store sales fell 10.9 percent.

Consumption at convenience stores rose 5 percent year on year. But last month’s increase was slower when compared to January, when it grew 8.1 percent.

Duty-free consumption did rise 36 percent, the sharpest increase since July last year.

The numbers released indicate that people are holding back on spending as the economic outlook has become increasingly negative. Financial and research institutions have been downgrading their outlooks on the Korean economy.

The Korea Economic Research Institute (KERI) is the latest to join other think tanks in lowering this year’s growth projection. KERI cut 0.3 percentage points off its forecast, lowering it to 2.4 percent, which is currently the lowest estimate.

Moody’s, earlier this month, adjusted its outlook to 2.5 percent, down from 2.7 percent, while the Organization for Economic Cooperation and Development (OECD) lowered its growth forecast to 2.6 percent, down from 2.8 percent.

As concern increases, the Korean government is responding. It is looking at passing a supplementary budget. The central bank is considering the lowering of the key interest rate.

The statistics agency expressed concern about manufacturing, but it was more sanguine about consumption and investment. Many new products are being introduced later in the spring, the new Galaxy S10 being just one example.

“There are consumers waiting for new products, whether it be cars or smartphones,” said Kim Bo-kyoung, Statistics Korea’s director at the industrial statistics division. “It is too early to conclude that consumption has turned around as we see it is in an adjustment period.”

The statistics agency director also said one of the reasons for the significant drop in investment is the massive funds committed to display and semiconductor manufacturing over the past two to three years.

“Because of large investment in the past, facility investment has been readjusted, and it is too early for new investments,” Kim said.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]
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