Korean Economy News
Korea’s June factory output sags, BSI worst since impeachment

By Lee Yu-sup and Cho Jeehyun

South Korea’s industrial activity in June weakened with capital investment sharply drooping amid deteriorating business sentiment and outlook.

According to Statistics Korea on Thursday, the seasonally adjusted mining and manufacturing output in June fell 0.6 percent on month, reversing from the 1.2 percent gain in the previous month. Against the same month last year, it was down 0.4 percent.

On Tuesday, the main Kospi bourse gained 0.08 percent to close at 2,295.26. The dollar was 0.13 percent lower at 1,118.70 won.

Automobile output shrank 7.3 percent on month as demand for auto parts and finished cars deteriorated both at home and abroad, eating into the 11.2 percent gain in the semiconductor sector. Chemicals output fell 3.6 percent against the previous month due to softening in solar panel related shipment to China while some underwent routine repair works.

Factory operation averaged 73.5 percent, down 0.5 percentage point from May. Inventory level grew 1.1 percent against the previous month and up 8.4 percent against a year ago period.

Service sector output grew 0.2 percent on month. Health/social care gained 2.4 percent and finance/insurance sector was up 0.9 percent while technology service output fell 3.3 percent compared to May.

Retail sales - a barometer for private consumption - grew slightly by 0.6 percent on month after a 1.1 percent fall in May due to growth momentum from World Cup related promotional events. Non-durable goods gained 2.0 percent and semi-durable goods like sports shoes were also up 1.4 percent, but durable goods contracted 2.8 percent as demand for new cars slowed down.

Capital investment plunged 5.9 percent on month to post losses for the fourth straight month due to a 9.9 percent drop in machineries and marked the longest slump in 18 years. The last time capex contracted for four months in a row was between September and December of 2000.

Both coincident and leading indicators, which measure present and future economic activities to suggest where the business cycle is at or heading, pointed to a receding economy. The coincident index slipped to 99.4 in June from 99.6 percent to mark the third straight month of decline and the steepest drop since December last year. The leading indicator also dipped to 100.0 from 100.1 in May. In OECD metrics, a value under 100 means that industrial production is below its long-term level to imply a negative output gap.

A separate business survey index (BSI), measurement of business sentiment and outlook, released by the Bank of Korea Tuesday sank further to 75 in July from 80 in June, the biggest fall since the following month of the outbreak of the Middle East respiratory syndrome in May 2015 to the lowest reading since 74 in February last year when political uncertainties peaked due to the first-ever removal of a sitting president.

The seasonally adjusted mining and manufacturing output for the full second quarter gained 2.7 percent against the previous three-month period and 0.6 percent versus a year ago, primarily led by strong semiconductor and chemicals demand.

Factory operation in the second quarter averaged 73.3 percent, up 2.3 percent from the previous quarter.

Service sector output grew 0.2 percent on quarter and 2.3 percent on year. Wholesale/retail sector tumbled 0.5 percent compared to the previous quarter but expanded 1.7 percent against the same period last year.

Retail sales index, which reflects consumer sentiment improved by 0.7 percent from the first quarter on gains in both non-durable and semi-durable goods.

Capital investment between April and June dwindled 10.8 percent on quarter and 5.7 percent on year with contraction in both machineries and transportation equipments.

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