Economic Slump Reaches Dangerous Levels

Last month’s economic indexes in industrial production, inventories, investment and consumption all showed red lights.

Wholesale and retail sales dropped the most sharply since November 1998 and inventories rose by their largest margins in 23 months.

According to the National Statistical Office’s industry data in April, wholesale and retail sales declined 4.3% from the same period the previous year. The figure also fell 1.8% in February and 3.0% in March. The drop in wholesale and retail sales for three consecutive months is the first instance since the financial crisis hit the nation between 1997 and 1998.

As consumer spending has contracted and inventories have increased, the capacity utilization rate has fallen and production and shipments have also dropped.

In the auto and chemical industries, producer inventories in April were up 11.5% from April of last year. The industrial production index and the producer’s shipment index rose 1.8% and 1.2% respectively but these figures are the lowest growth rates in 7 months.

Facilities investment was negative in January and February. It showed signs of slight recovery in March but the figure dropped again to –4.2%

The Coincident Composite Index (CCI) fell 0.5% from March and the Leading Composite Index dropped 0.6%, suggesting that the current economic slump will persist for the time being.

Economic think tanks predict 3.7% economic growth in the first quarter, but will drop below 3% or even 2% in the second quarter, considering that in May, operation days were reduced and cargo workers’ general strikes caused industry activities to slacken off.

Meanwhile, at a breakfast meeting organized by the Korean Chamber of Commerce and Industry, Park Seung, head of the Bank of Korea, warned that as the Korean economy is faced with a crisis of groups’ self-interest and a lack of mindset for reform, an era of low economic growth and high unemployment will emerge.

"Since the lame-duck period of the Kim Dae-jung government, it has lost its will for reform and the relationship between management and labor has worsened. In addition, general selfishness between the two groups has hobbled national projects like the Saemangeum reclamation project. There are also some problems in the fundamentals of the Korean economy."

Kwang-Am Cheon Kwu-Jin Lim iam@donga.com mhjh22@donga.com