Manufacturing was the engine of economic recovery

Manufacturing played a central role in overcoming the economic effects of the coronavirus pandemic, and it is expected to lead Korea’s recovery this year.

According to Hyundai Research Institute (HRI)'s analysis of Korea’s consumption, export, employment and production data, 79.3 percent of the economic shock incurred between January and May in 2020 was recovered by November. Manufacturing recovered better than services, and exports fared better than domestic demand. Employment lagged.

HRI calculated the indices representing the degree of rebound from the coronavirus shock, setting January 2020’s production at 100 and May’s performance as 0, as the economy was at its worst point then. The indices show how much improvement each sector has made. The worst economic shock faced by manufacturing was in May, when it hit 87.3, and the sector almost fully recovered in November by recording 99.9. The index for shipping and ICT was 140. Automobile and steel exceeded 90.

The index represents the level of production for each sector in order to examine the extent of recovery in production since the point right before the pandemic started.

The improvement in manufacturing led to recovery in exports. In May, when the economic shock was at its worst, the export value was 11.2 points lower than in January. In November, exports gained 7.1 points compared to January, recording an index of 101.7.

The index for the overall economic rebound in November was 163.7, which means that the economy grew 63.7 percent beyond full recovery. Meanwhile, services, which involves close contact, recorded 77.9 points, signaling a weak recovery rate. The index for consumption, which represents the state of domestic demand, had recovered 74.1 percent compared to January 2020.

“The manufacturing index decreased by a large margin when there was a shock in exports, but recovered promptly,” HRI wrote. “The service sector received harsh economic impact outside of finance, health care and welfare areas, and recovery has been slow.”

The index for employment was 25.5 in November, showing the biggest impact from the coronavirus. This means that only one-fourth of the reduction in employment due to the coronavirus was recovered. Employment for small business owners with employees who are burdened with labor costs and day laborers, many of whom lost jobs due to the pandemic, was slow to recover.

Manufacturing served as the main pillar of support in Korea’s economy during the Covid-19 crisis. Manufacturing contributed 1.9 percent out of the 2.1-percent growth in Korea’s GDP during the third quarter, when the economy started rebounding. More than 90 percent of Korea’s economic growth was accomplished by manufacturing.

“Manufacturing will lead exports in Korea and serve as the country’s barricade against crisis,” said Kang Sung-jin, an economics professor at Korea University. “As all kinds of anti-corporation laws have been processed simultaneously, uncertainties facing manufacturing firms are getting bigger. Bold incentives and removal of regulations and creating a favorable environment for corporations is the shortcut to overcoming the coronavirus pandemic.”

Manufacturing is likely to perform relatively well compared to other types of businesses. According to the Korea Institute for Economics & Trade, the business survey index (BSI) for 1,009 domestic manufacturing businesses is 103 for this year. A reading above 100 means optimists outnumber pessimists.

Most companies, including those involved in semiconductors, ICT, oil refining, chemicals and batteries, recorded values above 100. Companies in shipping and textiles mostly projected subpar performance for this year.

BY SOHN HAE-YONG [lee.jeeyoung1@joongang.co.kr]