The country’s industrial output, retail sales and facility investments simultaneously fell into negative figures for the first time in three months in July, according to Statistics Korea, Wednesday, prompting concerns that the path for economic recovery is being increasingly disrupted by downside risks here and abroad.
Analysts said Asia’s fourth-largest economy may slow down further in the medium term, although it may still manage to reach its annual growth target for 2022.
They noted both industrial output and facility investments are gauges of exports, while retail sales is a gauge of spending, although not of spending on services.
Exports and consumption have underpinned growth in the first half, and the July readings suggest the two economic barometers face downward pressure stemming from global recession fears, soaring inflation and interest rate hikes.
“I would say July performances of industrial output, retail sales and facility investments indicate that the nation’s economy can get worse over time,” said Park Chong-hoon, the head of economic research at Standard Chartered (SC) Bank Korea.
Industrial output inched down 0.1 percent in July from the previous month, compared with a 0.8 percent month-on-month increase in June, according to Statistics Korea.
Retail sales fell 0.3 percent in July after posting a 1 percent decline in the previous month, the fifth consecutive month of retreats, which is the first time the government has recorded this phenomenon in the time it has been compiling related data, since 1995.
Facility investments retreated 3.2 percent month-on-month in July, compared with a 4 percent increase the previous month.
July marked the first time since April that industrial output, consumption and facility investments all posted month-on-month falls together.
“Industries in general can be said to be producing and investing less because exports have been losing steam recently,” Park said, referring to a 3.1 percent decline in exports in the second quarter after marking a 3.6 percent increase in the first quarter.
The fall in exports was largely attributed to the protracted war between Russia and Ukraine and China’s extended COVID-19 lockdown measures.
In the second quarter, private spending rose 3 percent, covering up exports as consumption of semi-durable goods and services, such as travel and dining out, grew fast over eased pandemic restrictions.
Nevertheless, it remains uncertain whether overall consumption can get on an upward trajectory, the SC Bank Korea economist analyzed. “Rising inflation and interest rate are significantly reducing disposable income,” he said.
Inflation remains at a nearly 24-year high of 6.3 percent as of July, while the benchmark interest rate was hiked for the fourth consecutive time to mark 2.5 percent this month, making debt repayments tougher for households.
Joo Won, deputy director of Hyundai Research Institute, said the joint decline of industrial output, retail sales and facility investments may occur again and that they may eat into next year’s economic growth.
“The country may reach its growth target for this year, but hitting the target will be tricky as time passes as risks associated with the Ukraine crisis, inflation and the base rate are not likely go away soon,” he said.
The country’s growth outlook has been revised down over the months while inflation forecast has been revised up.
The latest forecast was from the Bank of Korea (BOK), which estimated the growth outlook for 2022 at 2.6 percent and annual inflation at 5.2 percent.
