Investment Down 2.5 Percent, Consumption Up 0.1 Percent

Although industrial production increased dramatically in April thanks to strong exports, facilities investment and consumption remained sluggish.

With no signs of recovery in domestic consumption, small and medium-sized enterprises expect economic conditions will deteriorate further in the third quarter between July and September.

According to a report on industrial activities in April 2004 released by the Korea National Statistical Office on May 28, strong exports of semiconductors and radio, TV and communication equipment boosted production by 11.3 percent year-on-year, maintaining growth for eleven consecutive months.

Facilities investment, however, fell by 2.5 percent, sliding downwards for two months in a row. Investment has shown negative growth after plunging 8.0 percent in July last year, except for 1.5 percent and 0.5 percent growth in October 2003 and February 2004 respectively. The trend aroused concerns over whether the Korean economy is losing its growth potential.

Thanks to a 1.6 percent increase in wholesale, wholesale and retail businesses managed to achieve a combined 0.1 percent growth rate despite a four percent decline in retail sales of cars and automotive fuels and a 0.9 percent decrease in overall retail sales.

In the retail sector, sales in department stores fell for two consecutive months with an 8.4 percent drop in April. Car sales also plunged by a whopping 12.9 percent.

The Korea Credit Guarantee Fund announced its Business Survey Index (BSI) for the third quarter the same day. The BSI fell by seven points from the previous quarter to 90. A BSI of 100 or higher means more companies have positive economic outlook while a BSI lower than 100 shows that more companies are negative about the future economy. Out of 1,700 small and medium-sized manufacturers that responded, 36.3 percent said economic slowdown is due to contraction in domestic consumption while 31.5 percent blamed price increases of raw materials, 15.2 percent blamed the worsening financial situation, and 7.7 percent attributed worsening sales conditions.

Jong sik Kong Joong-Hyun Park kong@donga.com sanjuck@donga.com