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(News Focus) S. Korea faces growing woes over economic slowdown

Economy 14:02 March 02, 2023

By Kwak Young-sup

SEOUL, March 2 (Yonhap) -- South Korea is faced with escalating jitters over an economic slowdown down the road despite a forecast-beating upturn in its latest industrial output tally, analysts said Thursday.

The surprise rise in industrial production, however, is overshadowed by sluggish exports due to tumbling overseas demand for mainstay chips, which has sent manufacturers' inventories to the highest level in 25 years.

Making matters worse, private consumption remains in the doldrums, sending retail sales dropping for the third straight month in January and stoking concerns over future economic uncertainty.

In a monthly report, Statistics Korea said South Korea's industrial output edged up 0.5 percent in January from December, the first on-month increase in four months.

The country's industrial production shrank 1.2 percent and 0.4 percent on-month in October and November, respectively, before remaining unchanged in December.

January's rebound came as the combined output in the mining, manufacturing, gas and electricity sectors increased 2.9 percent in January from the previous month.

Growth in January's overall industrial output surpassed a forecast of a 0.47 percent on-month decline in a survey of seven domestic and foreign financial institutions, taken by Yonhap Infomax, the financial news arm of Yonhap News Agency.

Despite January's gain, officials and market watchers point out there are growing signs of a slowdown in Asia's fourth-largest economy.

Finance Minister Choo Kyung-ho speaks during a meeting with economy-related ministers in Seoul on March 2, 2023, in this photo released by his office. (PHOTO NOT FOR SALE) (Yonhap)

Finance Minister Choo Kyung-ho speaks during a meeting with economy-related ministers in Seoul on March 2, 2023, in this photo released by his office. (PHOTO NOT FOR SALE) (Yonhap)

"Uncertainty remains high over how the economy will perform down the road as exports remain anemic amid slowing domestic economic indicators," Finance Minister Choo Kyung-ho said during an emergency meeting with economy-related ministers to discuss export issues.

Worries over South Korea's economic slowdown are fueled mainly by a protracted slump in its overseas shipments, which stems from tumbling exports of semiconductors, its top export item.

The country's exports sank 7.5 percent on-year to US$50.1 billion in February, falling for five months running and marking the first time since 2020 that exports have declined for five months in a row.

The overall drop came as exports of chips nose-dived 42.5 percent from a year earlier amid weak global demand in the wake of economic uncertainties abroad.

"Without a rebound in overseas demand for chips, there will be limits in the recovery of exports for the time being," Choo said.

"The government plans to further bolster the competitiveness of key industries, such as chips, rechargeable batteries and electric vehicles by securing next-generation technologies and nurturing experts," he added.

Shin Eol, chief investment strategist at Sangsangin Investment & Securities Co., chimed in, voicing his concerns of semiconductor exports.

"Starting this year, expectations for the volume of chip exports have weakened amid a situation that it is hard to secure stable prices due to slackening overseas demand."

At a separate meeting on exports, Industry Minister Lee Chang-yang said both external and internal conditions for exports and investment are far from favorable, citing a global economic slowdown, high interest rates, the country's massive energy imports and a delay in the revision to a tax incentives law for technology investment as major challenges.

"The government is strongly committed to backing exporters by extending trade financing and state budgets and by supporting their push for joint projects with the Middle Eastern nations," he said.

South Korea has set this year's export target at $685 billion, up 0.2 percent from last year's total, though the finance ministry earlier said that exports were forecast to register a 4.5 percent on-year fall in 2023.

Containers are stacked at a port in the southeastern city of Busan on March 1, 2023. (Yonhap)

Containers are stacked at a port in the southeastern city of Busan on March 1, 2023. (Yonhap)

Against such a backdrop, domestic demand, another backbone of South Korea's economy, along with exports, remains stuck in a slump in recent months after showing a recovery following the removal of some COVID-19 restrictions.

Retail sales, a key barometer of consumer spending, shrank 2.1 percent in January from the prior month due to weaker demand for semidurable goods, foodstuffs and winter clothes as a result of warmer-than-usual weather. It was the third straight on-month decline.

"In 2021, retail sales, led by durable goods, shot up following the COVID-19 pandemic. However, since last year, consumption has shifted towards the service sector as outdoor activities have returned to normal," said Kim Bo-kyung, a senior official at Statistics Korea.

Analysts are also voicing concern over South Korea's high consumer inflation.

South Korea's consumer prices expanded 5.2 percent in January from a year earlier as energy costs shot up to a record level.

It was higher than the 5 percent on-year gain in December. Consumer inflation rose 5 percent or higher for the ninth month in a row. January's figure stayed above 2 percent -- the central bank's inflation target over the medium term -- for the 22nd straight month.

With most major economic indicators taking a turn for the worse, South Korean businesses and consumers remain jittery over how the local economy will fare.

Local companies' business sentiment index (BSI) for March came to 71, up 3 points from the previous month but remaining far below par, according to a recent central bank survey. A reading below 100 means pessimists outnumber optimists.

Affected by sinking exports and high prices, the country's consumer sentiment stood at 90.2 in February, down 0.5 point from a month earlier and below the benchmark 100.

Analysts warn that weak business and consumer sentiment, combined with plunging exports, will likely have a negative impact on the South Korean economy this year.

South Korea's economy is estimated to have grown 2.6 percent on-year in 2022, slowing from a 4.1 percent gain the previous year. A week ago, the central Bank of Korea lowered its growth outlook for this year to 1.6 percent from a 1.7 percent rise predicted three months earlier, citing global monetary tightening.

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