Indicators Say Korean Economy Slowing

The economy is slowing down again after a “short-lived recovery” of 14 months.

The government argued, “We need to wait and see for two or three more months, and the economy is not slowing down,” in February when signs of a sluggish economy appeared in various statistics. But the situation has deteriorated.

Sluggishness in the construction sector has driven a “double dip” of the Korean economy.

According to the National Statistical Office’s report about industrial activities in June which was released yesterday, the leading economic index, which predicts the economic situation for six months to come, dropped 0.4 percentage points from last month to 4.9 percent.

The figure has been on the decline for five consecutive months since February this year.

The index forecasts future economic health using 10 indicators, including the ratio of job seekers and hires, consumer expectation index, inventory cycle indicator and terms of trade depending on foreign exchange rate fluctuations.

The most striking item among the indicators is the inventory cycle indicator which decreased 1.2 percent from last month. Although the quantity of products churned out from factories declined, inventory grows because the products are not sold. The increasing inventory represents the production engine weakening.

Worse yet, the current economic situation is not good, either.

The “cycle of coincident economic index” which best reflects the current economic condition dropped 0.1 point from last month, posting minus growth for three months in a row since April.

Among eight items used in calculating the coincident economic index, seven items, including industrial production and wholesale and retail sales, expanded by a slight margin. However, the decrease in the amount of money, which construction companies received for completing their construction, set off the growth in the other items.

The amount of money paid to construction companies went down 1.5 percent from last month, for the first time in four months since February.

Domestic construction orders in June reduced 7.7 percent compared with the same month last year, with the civil engineering sector posting a 21.1-percent reduction.

Industrial production in June grew 10.9 percent from the same month last year and 1.2 percent from last month, but the growth rate is slowing down. Also, consumption increased 5.2 percent from the corresponding month last year, but the growth rate reduced from that of last month (5.8 percent).

The market expected that the World Cup in June would increase demand and slow the speed of the economic downturn, but the special effect disappeared as well.

The Ministry of Finance and Economy and the National Statistical Office still argue that it is “not an economic downturn.” They explain that it is a temporary slowdown of growth in an economic expansion, and that chances are that the economy will recover in the third quarter.

However, Oh Mun-seok, a managing director at LG Economic Research Institute, said, “I see the current situation as more of the beginning of a downturn than a mere economic slowdown,” adding, “Amid continuing sluggishness of the construction sector, the export sector, which has driven domestic growth, will be affected by the global economic slowdown.”

Hyun-Jin Park witness@donga.com