Fast Decline in the Product Market

The July industrial production index has shown the worst performance in 2 years and 9 months since the October 1998 financial crisis. At a time when production, export-import, and shipping in the product market is declining, the August consumer price rose 0.5 percent from the last month, increasing 3.5 percent from last year and showing clear signs of stagflation.

The Ministry of Finance and Economy and the National Statistical Office published this information on August 31 titled, `July Industrial Production Activity` and `August Consumer Price Activity`.

Last month`s industrial production decreased 5.9 percent from the same period last year, making negative progress for two straight months. Fluctuations in the July industrial production is the worst since the 8.8 percent during October 1998.

Also, the manufacturing industry`s rate of operation dropped 3.1 percent since July, ending with 71.0 percent – the lowest since February 1999.

Export shipping in main products such as semiconductors, computers, and automobiles dropped 11.2 percent, while domestic shipment decreased 1.5 percent.

Corporation investment has also frozen and investment in facility and equipment dropped 10.3 percent, making negative progress for 9 months straight.

The July wholesale and retail sales stopped after a 2.5 percent increase, showing the beginning signs of shrinkage in consumption which was seen to be more favorable than exports and imports.

Park Hwa-Soo, Director General of the NSO Economic Statistics Bureau, said, ``Although the economic production number is rising according to the index, the July production, consumption, and investments have been extremely weak, making future prospects all the more ambiguous.``

While industrial production is declining fast, drought and concentrated local downpour in August raised agricultural and fish products 0.5 percent from July, continuing price instability. Prices in August rose 4.7 percent from the same month last year while the end of August price increase rate has already risen 3.5 percent, approaching the government`s yearly ceiling (less than 4 percent).

``Taking into account the July economic indicators, the Korean economy is facing serious difficulties in real terms.``

yhchoi65@donga.com