Rock Bottom and Blinking Signs

The real economical indices show that the economy is reviving.

Department store and discount store revenues have increased for the first time in nine quarters (two years and three months) and leading economic indices have reflected increases for three straight months.

However, department store and automobile sales were lower than expected, signaling that the economic revival is relatively slow.

Already Hit Rock Bottom-

On May 28, the National Statistical Office published a report on “Industry Trends in the First Quarter.” The focal point of the report was that department store and discount stores revenues (retail index) have increased by 1.2 percent from the first quarter of last year. This is the first time the retail index has increased in nine quarters, since the fourth quarter of 2002.

With the exception of March 2003 and February 2004, department store revenues have decreased continuously. However, they have increased by 0.1 percent this March compared to the same time last year. Discount store revenues have also risen by 9.1 percent, increasing for two straight months.

The construction industry has been showing clear indications of revival. The number of construction contracts, which affects the industry six months after their signing, rose by 72.7 percent in March, the largest increase since June 2003. The government contributed to the 177.1 percent increase in the public sector by early budget expenditure and in the private sector, housing and offices were the main contributors of the 51.7 percent hike.

The Samsung Economic Research Institute’s head researcher Hwang In-sung stated, “Low domestic demand, which has been the main cause of the sluggish economy, is now showing signs of recovery. In terms of economic growth, it looks as though the first quarter was the lowest point.”

Unstable Recovery-

The signs of recovery are there, but time will have to pass in order for the public to feel the change. The signs are too feeble at the moment.

Shin Min-young of the LG Economic Research Institute said, “The export growth rate was over 10 percent and domestic demand is growing, so we had expected production to grow by 6-7 percent in March compared to the same month in 2004, but it fell below our expectations, at 4.8 percent. It is also disappointing that the first quarter’s production growth (3.8 percent) has fallen from last quarter’s (6.7 per cent).”

The fact that department store revenue growth for March only recorded 0.1 percent is also disconcerting.

Due to the appreciation of the Korean won, there is a high possibly that the profits of export companies will fall, and have a negative impact on exports. However, domestic demand, which is expected to help, is too weak. Automobile sales have fallen by 3.9 percent, showing that the consumers are reluctant to part with relatively large sums of money.

April’s BSI (Business Survey Index), which the Bank of Korea extracted from 2486 companies, also falls short of reassuring. Manufacturing companies’ BSI stands at 85 while other sectors recorded 80, reflecting increases over four consecutive months.

However, the BSI indicating the economic prospects for May recorded 91 in the manufacturing industry, which was the same as in the previous month, and 88 in the non-manufacturing sector, falling by one point from the preceding month. Such a stall or downward turn in economic prospects has not occurred in months.

Hwang In-sung pointed out, “Given that exports do not fall suddenly, consumer confidence must rise in order for the economy to revive. The exchange rate, oil prices, China, and other macroeconomic variables may impact the economy, so keeping careful watch of the exchange rate is imperative.”