Output, sales, investment fall in Oct. amid weak demand

Economy

Published: 30 Nov. 2023, 17:58 Updated: 30 Nov. 2023, 23:09

Output, sales, investment fall in Oct. amid weak demand

People browse grocery items at a supermarket in Seoul on Thursday. [YONHAP]

A trio of key economic indicators — industrial output, retail sales and facility investment — fell into a downward trajectory in October, reversing an upturn trend from the previous month.

Industrial output dropped 1.6 percent on-month last month following a 1 percent on-month gain in September, according to Statistics Korea on Thursday.

The downbeat result is attributed to lower production in the semiconductor and machinery sectors as the industries are still reeling from a slowdown in demand for electronic devices.

Retail sales, a gauge of private spending, and facility investment also logged an on-year decline last month.

Compared to a year earlier, sales fell 0.8 percent due to weak demand for cosmetics, food and beverages, the data showed.

Facility investment tumbled 3.3 percent in October from a month earlier, affected by weak performances in the automobile and machinery sectors.

The reading marked a 9.7 percent fall from a year earlier, according to the agency.

Against this backdrop, the Bank of Korea (BOK) kept interest rates unchanged at 3.50 percent for the seventh consecutive meeting on Thursday, signaling that interest rates may need to stay high to combat inflation.

Bank of Korea Gov. Rhee Chang-yong speaks during a press conference held at the bank’s headquarters in central Seoul on Thursday following the Monetary Policy Board meeting held earlier in the day. [BOK]

It was a unanimous decision by the Monetary Policy Board at its final meeting of this year amid weak spending and high inflation, according to the central bank.

“The board decided it would be appropriate to keep the current restrictive policy considering high external uncertainties,” said the BOK Gov. Rhee Chang-yong during a press conference held at the central bank headquarters in central Seoul.

He cited the slowing trend of inflation, household debt and the impacts of the Fed’s high interest rates.

“Consumer price inflation has been slowing since its peak last year and has recently rebounded due to supply shocks, but it is predicted to show an overall slowing trend due to weakening domestic demand-side inflationary pressures,” said the central bank.

The bank revised the language from previous statements that stated a restrictive stance could be persistent for a “considerable time” or a “sufficiently long” period.

Of the seven board members excluding Rhee, four noted the need to remain open to further raising rates depending on inflation. The other two said it would be more appropriate to maintain the current rate, citing growth and financial stability.

A member who said last month that the board should be open to lowering the policy rate withdrew that opinion as oil price uncertainties caused by the Israel-Hamas war have eased.

Restrictive policy “will persist until [the board] is certain inflation has sufficiently converged to the target 2 percent,” Rhee said. “It may take longer or shorter than six months for inflation to reach the target rate. Realistically, I believe it will take longer.”

Korea’s headline inflation in October grew 3.8 percent on year, up from 3.7 percent the previous month, but down from the 6.3 percent peak in July last year.

The BOK kept Korea’s economic forecast for this year at 1.4 percent on Thursday, remaining unchanged from the August projection. But it slashed the estimate for next year by a 0.1 percentage point to 2.1 percent. The central bank expects the economy to bounce back in the following year to 2.3 percent.

“The economy is expected to gradually improve driven by exports due to the rebound in the semiconductor industry, but domestic demand is predicted to recover more slowly than previously expected due to the impact of monetary policy tightening,” according to the BOK.

The central bank also revised up inflation estimate for this year by 0.1 percentage point to 3.6 percent and by 0.2 percentage points to 2.6 percent. It estimates that inflation will be near the target rate in 2025 by reaching 2.1 percent.

BY JIN MIN-JI, PARK EUN-JEE [jin.minji@joongang.co.kr]