Korean economy enters correction

Thanks to brisk exports of semiconductors and PCs, the nation`s manufacturing and investments remain very active. However, consumption growth has been slowing substantially, thus appearing as a correctional phase in the economy.

With the second quarter as a turning point, the nation`s economy is taking a rest and stands at a crossroads whether it will rebound or maintain a slowdown, hit by weakened consumption as well as soaring oil prices.

According to July`s industrial activity report released by the National Statistical Office, production and exports increased 19.3% and 31.2%. Facilities investment jumped by as much as 30% due largely to heavy investment by computer and telecommunications equipment makers. The average capacity utilization ratio of manufacturing industries, a barometer of the real economy, recorded 81.5%, which is similar to the previous month`s 81.9%.

On the other hand, wholesale and retail sales growth declined to 11.1% and 8.3%, showing a sign that consumer confidence is cooling off with unrest in the financial market and worries about economic slowdown.

Domestic construction orders increased only 12.7% due to sluggish orders in the public sector.

Park Hwa-Soo at the National Statistic Office (NSO) said that the growth rate of the real economy is being maintained thanks to brisk exports and facilities investment, although domestic consumption is slowing down. In particular, the dominance by exports and investment instead of consumption shows that industrial activities are returning to the normal track.

Still, the external circumstances are turning unfavorably to Korea with soaring international oil prices, so some analysts say that it is unlikely that the economy will regain growth momentum for the time being.

Park Won-Jae parkwj@donga.com