|Graphic by Park Gee-young|
Expectations that the Korean economy will recover its traditional growth rate of 4 percent have been buoyed by improvements in several measures of the country’s productivity, boosting local business sentiment.
Data compiled by Statistics Korea recently showed that three main areas of economic activity ― investment, consumption and industrial production ― increased, with the manufacturing sector, the country’s prime growth driver, making a comeback.
Korea’s industrial production in August reached a record high, entering positive territory after nine months of slowdown.
Korea saw its manufacturing industry increase its production by 1.8 percent in August from the previous month, with its plant operation ratio close to 77 percent.
This is the fastest growth since November last year, when the increase was 2.1 percent, after which global uncertainties weighed the sector down. The HSBC Korea PMI rose to 49.7 in September, the highest in four months.
Recent production recovery marks a vital boost to the country’s economic output, which has been backed mostly by exports, overseas sales and government spending since the global financial crisis.
Increased manufacturing is expected to lead to increased private investment. Data showed an increase in facility and equipment investments of 0.2 percent on-month in August compared with a contraction of 2.7 percent in July this year.
The increase was mostly attributable to the airline industry boosting their investments in logistics equipment and airplanes, the statistics bureau noted, adding that construction investment also grew.
Private consumption also showed improvements with retail sales increasing over the last three months, a sign that could boost the multiplier effect of the country’s growth.
Statistics Korea officials said data was “positive” on all sides of the economy, with monetary and fiscal stimulus yet to affect the market.
The Bank of Korea mentioned that a rate cut in May, which was to support the government’s fiscal measures, would rejuvenate the market toward the end of this year as it generally takes at least six months to see the effects of its monetary policy.
The government, meanwhile, frontloaded about 60 percent of its spending for rapid recovery in the first half to help the economy come out of the low-growth trap.
However, analysts and government officials said it was too early to say that Korea was finally on track toward 4 percent growth due to external uncertainties regarding quantitative easing and government shutdown in the U.S.
“While there was a broad improvement across the key sub-indices, many sub-indices remained in contraction territory,” HSBC Global Research said in a report.
“This, alongside the weaker than expected trade data for September, provides a clear reminder to markets that the upward momentum underpinning Korea’s economic recovery is still rather slow,” it added.
The Asian Development Bank revised down Korea’s growth projection for next year from 3.7 percent to 3.5 percent due to a slowdown in India and China, Asia’s main growth economies, and an expected phase-out of the U.S. monetary stimulus.
By Park Hyong-ki (email@example.com)