Index Economy Depressing Even with Signs of Domestic Recovery

The index economy still doesn’t show any recovery sign as production rate is slowing down due to poor export performance, and consumption and facilities investments are also on the decline.

However, the domestic economy is showing signs of recovery as the construction orders total, which forecasts the future construction economy, is breaking its highest record yet. Automobile sales have also increased for the first time in six months.

The government holds an optimistic view, announcing that “the economy looks like it can’t go any lower,” but private experts are cautious, saying, “We’ll have to see.”

According to “Business Trends in December 2004,” announced by the National Statistical Office on January 28, in December of last year, business production was at a 4.5 percent decrease compared to the same month of the previous year due to poor export performance. This is the lowest mark in one year and four months, following a 1.6 percent increase in August 2003.

Business production levels decreased from 13 percent in July 2004 to 5.8 percent in October, and improved temporarily in November to 9.9 percent, before falling again.

In December 2004, exports increased at a rate of 14 percent, making the increase gap the lowest since August 2003 when there was a gap of 10.3 percent.

The facilities investment extrapolation that sparked an increase in November of last year decreased two percent compared to the same month of the previous year, and continues to plunge.

The top consumer index, wholesale and retail sales, decreased 0.1 percent compared to the same time last year, and finished with a decline for a sixth consecutive month.

The economic leading indicator fell 0.2 percent compared to the same month last year due to a lull in production as well as deteriorating domestic demand, and showed a decline for a ninth consecutive month.

Meanwhile, a recent perk in mass reconstruction and renovation consumption kept the construction areas singing in December 2004.

Domestic construction commission skyrocketed 38.4 percent compared to the same month last year, with an unprecedented 15.162 trillion won. Construction commission leads to actual construction within 12 to 14 months.

In addition, there has been a decreasing gap for wholesale and retail sales compared to the same months of last year: 2.5 percent in October 2004, 1.6 percent in November 2004, and 0.1 percent in December. Automobile sales increased 5.9 percent compared to the same month last year, escalating for the first time in six months.

The Ministry of Finance and Economy’s Economic Policy Director Lee Seung-woo explained, “We’re being tentative, but it seems that consumption is slowly recovering.” In response, Shin Min-young, a researcher at the LG Economic Research Institute, cautioned, “We’ll have to wait and see if the economy is really in a recovery phase.”

Chi-Young Shin higgledy@donga.com