Experts: Economic Indices Will Fall

July economic indicators will show losses compared to June figures, said Park Byung-won, Vice Minister of Finance and Economy at a regular ministry briefing.

It is a rare occasion that a ministry official takes weak indicators for granted, though he explained that the downturn derives from only temporary reasons, including auto industry strikes, and the message was merely intended to prevent overreaction from the market.

From August 29, important economic indicators are to be released. Industrial activities, service industry output, trade information, and consumer prices will give economic prospects for the second half. Economic entities are interpreting Park’s remark as a warning and paying keen attention to the severity of the actual shockwave.

A private institute added to the apprehensions by releasing a gloomy outlook for the global economy.

Ominous Signals-

The July Industrial Activities index will be announced on August 29. The focus of attention is whether year-on-year industrial output growth will be over 5.0 percent. Experts predict that the growth will be lowest since last June (3.7 percent) due to the auto industry strikes and production setbacks by torrential rain.

Another case in point is if service industry output growth, slated for August 31, will drop below 4.5 percent in June. The figure is shrinking from 6.1 percent in the first quarter and 5.3 percent in the second quarter. Another drop may signal the downturn is a trend, not a temporary slowdown.

The problem is that indicators in the second half are unlikely to be improved from July figures. Power plant unions warned that they might go on strike. Longer-than-usual Chuseok holidays will also affect the economy badly.

Bad indicators may put pressure on sentiment indicators, which will again exert negative impact on business indicators.

Possible Setback in Global Economy in 2007-

The global economy in 2007 will see an accelerating recession in the U.S. and the economies of China, EU and Japan will start to decline, said Hyundai Economic Research Institute in its report titled, “Signs of Global Economic Downturn.”

If the global economic setbacks from the U.S. start exerting effects, the Korean economy, which is heavily dependant on overseas markets, might be dragged down by sluggish demand home and overseas, said the report. The U.S. economy has been driven by strong domestic demand, but high oil prices and cooling in real estate markets are slowing down the growth.

Japan and the EU economy are maintaining their recovery momentum, but their leading economic indicators peaked and turned downward in February and May, respectively. China, one of the two pillars of the global economy with the U.S., is expected to witness lower growth than usual due to entrenchment policies.

Asia Development Bank expects that China’s economic growth, which is expected to be 9.5 percent this year, will shrink to 8.8 percent next year.

buddy@donga.com