Industrial Growth Index Hits New Low

Last month, the industrial output growth rate hit a new low over the past 13 months.

In addition, sales in consumption goods shifted below that of the same month last year, and the composite leading indicator, which foretells the economic status in the coming times, stayed on a downward slope for the past consecutive six months, realizing the concerns of an economic downfall.

Stagnation in Both Industry and Consumption-

According to the "Industry Trend July" presented by the National Statistical Office (NSO) on August 29, the industrial output last month increased by only 4.4 percent against the same month in the previous year.

This rate is about half of that of this June (10.9 percent) and the lowest since June of last year. July’s industrial output growth rate does not even reach the five percent rate predicted early in the market.

Consumption was low as well.

Sales of consumption goods last month were 0.5 percent lower than that of the same month in the previous year. It is the first time in the last 18 months that sales in consumption goods have shrunk since January last year (―4.0 percent).

The progress amount (the amount of money the construction company obtained after the construction) in the domestic construction industry decreased by 0.7 percent against the same month last year, influenced by the dull construction records in the private capital sector due to the heavy rain. It is the first decline in the last 17 months since February last year (―3.3 percent).

The NSO explained that the downfall in the industrial output growth rate was caused by the strike in the vehicle industry and the heavy rain. It also added that the fact that the rate was so high in the comparable time period, July last year, acted as another factor.

Regarding the reduction in the sales of consumption goods, it explained that such was the consequence of the reduction in vehicle sales due to the strike in the vehicle industry and in the consumption of fuel for vehicles following the heavy rain.

Ongoing Downfall of the Composite Leading Indicator-

Prospects in the future are not that bright either.

The composite leading indicator that tells us the economic status in six months time stayed at 4.3 percent, 0.5 percent lower than the same month the previous year, and maintained a downward slope for the last six months.

The composite leading indicator is an economic indicator that anticipates the future economy through 10 indicators that include the opening-to-application ratio, the consumer expectation index, and the inventory cycle index.

Director of the Economic Statistics Research Division of the NSO Choi In-geun says, “Our experience in the past tells us that when the composite leading indicator continues to fall for six months, the economic status usually turns downward around 8~15 months from the beginning of the first fall."

This means that the economy might start declining in October this year, for the composite leading indicator has been falling down since February this year. But it is possible that the economy has already started to decline considering the fact that the period of an economic cycle has been shortening recently.

Regarding this, Director Choi stressed, "It is too early to mention a real economic decline."

Also, the Director of the Economic Policy Division of the Ministry of Finance and Economy Cho Won-dong said, “An economic decline can have different meanings depending on whether it happened at the top of a mountain or on a plateau. We should focus more on the fact that the breadth of the decline is shrinking."

On the other hand, researcher Shin Min-yeong of the LG Economic Research Institute said, “It is not clear whether the economy is shifting into a stagnation phase, but the economy obviously is becoming dull rapidly. Without artificial measures to stipulate the economy, the domestic economy will reach the trough around the second quarter next year (April~June) like the global economy."

smhong@donga.com