Facility Investment Posts First Negative Growth in Six Years

The increase rate of machinery investment, which is the basis for the manufacturing industry, has gone into the red for the first time in six years.

Negative growth in machinery investment, which accounts for about 80% of Korea’s total facility investment, means that even basic investment has not been made properly in existing aging equipment, triggering concern over the weakening of Korea’s growth engine in the manufacturing sector.

According to the Bank of Korea on December 10, machinery investment was 17.428 trillion won in the third quarter of the year, a 0.9% drop compared to the same period last year. It was the first quarterly decrease in 23 quarters since the fourth quarter of 2001 (-3.7%).

This was due to sluggish investment in the IT sector in the third quarter of the year; previously, the IT sector including semi-conductors led increases in IT facility investment.

Though machinery investment posted temporary minus growth in 2001 due to the rapid increase in facility investment in 1999 and 2000 in the process of overcoming the financial crisis of the late 1990s, it has steadily grown since the first quarter of 2002.

Even in 2004 when the credit card delinquency dragged down private consumption, facility investment in the machinery sector maintained 5-10% growth rates.

The Bank of Korea said, “Part of the reason is that all of the ATM machines and sensors of vending machines for the new currency notes have been almost replaced in the first half of this year. And also, investment in semiconductor manufacturing equipment and optical instruments, which led to investment in machinery, has gone down.” Lee Seung-cheol, managing director of the Federation of Korean Industries, said, “Corporate investment is shrinking because of the bleak outlook for the national economy next year.”

Total facility investment, including machinery and transportation equipment, went up by 1.6% year-on-year in the third quarter, the lowest increase rate in three and half years since the first quarter of 2004 (-0.1%).

ssoo@donga.com