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Manufacturing capacity utilization hurt by weak trade, low interest rates: KIET

All News 14:19 June 10, 2018

SEOUL, June 10 (Yonhap) -- South Korea's manufacturing capacity utilization rate that has been sliding in recent years has been mostly affected by weak trade and low interest rates, a local think tank said Sunday.

According to the report by the state-run Korea Institute for Industrial Economics and Trade (KIET), the factory utilization rate fell to levels not seen since 2009, when Asia's fourth-largest economy was rocked by the global financial crisis.

Statistics Korea said earlier that utilization numbers have been falling more or less after 2010 and stood at just 71 percent in the first quarter of 2018.

KIET said that the general fall off is linked to weaker global trade that impacted numbers here while low interest fueled facility investments that naturally led to excess capacity in the midst of weak demand.

"There has been a noticeable drop in manufacturing sector growth, but at the same time companies thinking conditions could improve down the line took advantage of low borrowing costs to build up their facilities that are not being used," the findings showed.

From 2010 onward, manufacturer sector growth stood at 3.5 percent on average annually although this was outpaced by facility investment that rose 4 percent in the same time period. This is causing challenges as manufacturing sector production has fallen behind that of growth capacity.

In addition, the report claimed that low rates allowed marginal companies that are hard pressed to pay back their loans to stay afloat. This has led to these firms maintaining their production capacities that are not being utilized.

In 2011, 7.1 percent of all manufacturing companies were classified as marginal, with this number rising to 9.3 percent in 2015.

By sector, semiconductors production has managed to pull off slight growth thanks to steady worldwide demand, but output in textiles, cars and ships all declined, which lowered capacity utilization rates.

The Korea Institute for Industrial Economics and Trade's logo (Yonhap)


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