Disparity Between Estimates and Reality

Concerns that the economic recession could be prolonged are growing as retail sales are down and equipment production has sharply decreased.

Orders received by domestic construction companies have been in a decline since the announcement of the government’s real estate policy on October 29, signaling that the new plan could impede economic recovery.

According to the National Statistical Office report on industrial activities in March and the first quarter (January-March), last month’s production was up 11.5 percent compared to the previous month due to a rise in exports, but equipment investment dropped 6.8 percent. Equipment investment decreased 3 percent for the first quarter.

Wholesale and retail sales were up 0.9 percent from the same period last year. Though sales increased 0.2 percent for the first quarter, rebounding after three quarters of decline since it dropped 1.7 percent last quarter, experts assess this as too small of a jump to pin our hopes of an economic recovery on.

Retail sales, which reflect real life economy, reported a growth in large retail stores, but a decline in department stores and home shopping, dropping to 3.5 percent for March and 1.6 percent for the quarter.

Department store sales, in particular, plummeted 16.5 percent from the previous year and recorded the steepest drop in five years and five months since declining 20.6 percent in October, 1998.

Domestic construction orders, which will affect the construction industry for another six months, decreased 3.2 percent in March, dropping three months in a row due to the real estate policies announced last October. Dropping 14.2 percent for this quarter, orders were in the decline for the first time in three years since dropping 15.4 percent in the first quarter of 2001, generating much concern for the industry.

Industry production for the first quarter jumped 11 percent as export-oriented products such as semiconductors (58.2 percent), and video and audio communications (26.5 percent) recorded sharp growth.

Meanwhile, Deputy Prime Minister and Minister of Finance and Economy Lee Hun-jai projected that this year’s economic growth rate would exceed the 5.5 percent estimate made by the Korea Development Institute.

At a session on Korean economy held in New York on April 28 (local time), Minister Lee commented, “Despite projections that this year’s economic growth will exceed 5.5 percent, this growth is spurred only by exports, while domestic demand remains low.”

Addressing the impact of the general elections on economic recovery, Minister Lee assessed, “The Uri party has established the foundation to pursue reform policies by taking up the majority of seats in the National Assembly. Contrary to the concerns of many, most of those elected are moderate reformists, and will work in line with government policies.”

Jong sik Kong Kwon-Heui Hong kong@donga.com konihong@donga.com