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Tightening consumption feared to sap production vitality
The Korean economy showed strong signs of recovery in November, as indicated by Statistics Korea data for overall industrial output registering a month-on-month increase of 3.2 percent. This figure is the sharpest increase in 17 months, since 3.9 percent in June of last year.
The notable rebound in the November figure came due primarily to a base effect in October, when the month-on-month figure for overall industrial output dropped 1.9 percent, sapped by two extra holidays and a solid performance in September.
Also anchoring November’s figure was a solid recovery in car manufacturing and service industries, buoyed by the government’s “Living with COVID-19” scheme.
The economy will have to brace for heightened uncertainty in the months to come, as foreshadowed by rapidly weakening consumer sentiment due to the Omicron variant-induced stricter social distancing measures, compounded further by supply chain disruptions and rising inflation.
Experts say whether and how fast Omicron is brought under control will determine the course and the pace of the country’s recovery.
Both manufacturing and service output increased in November, by 5.3 percent and 2 percent, respectively. Manufacturing reported growth after two consecutive months of decline in September and October.
Car manufacturing registered an 11.3-percent increase, the highest since January, when the figure stood at 12.6 percent. The double-digit recovery coincided with a 4.5-percent jump in semiconductor manufacturing, driven by the easing of a supply bottleneck.
“The October impacts of supply disruptions for automotive chips and two extra holidays have largely faded this month,” a Statistics Korea official said. “But the increase in car production should not at all be overrated, since the industry has experienced continued sluggishness over the past few months.” Car production fell 4.8 percent in October, a base effect bolstering this month’s figure.
The service industry logging an 18-month high of 2 percent is a recovery from a month earlier, when the figure fell 0.4 percent.
Arts, sports and leisure industries soared 8.3 percent, followed by the hospitality industry (5.6 percent) and financial services (3 percent).
Consumption as measured by retail sales sank 1.9 percent. This figure is the steepest decline in 16 months since July of last year, when the month-on-month figure slumped 6.1 percent.
Sales of nondurable goods including cosmetics products edged up 0.4 percent, whereas semi-durable goods, notably clothing, fell 5.7 percent, due to a decrease in sales brought on by unusually warm winter weather. Durable goods including home electronic appliances dropped 3.2 percent.
Consumption will be hit hard, mostly in the form of a significant sales decline in small businesses, according to Seoul National University economist Lee In-ho, since in-person, face-to-face services will be restricted for longer than expected.
“The fast spread of Omicron is crushing small businesses, a group of people whose livelihoods have been in tatters over the past two years. They will lose hope further, if another variant emerges in the future, leading to stricter distancing rules.”
The grim anticipation is backed by Bank of Korea data, which showed that the Composite Consumer Sentiment Index (CCSI) stood at 103.9 in December, down 3.7 points from last month. December’s figure broke the three consecutive months of an uptrend that began in September.
Deputy Prime Minister and Finance Minister Hong Nam-ki said that the government efforts will focus on virus containment measures. “We will monitor related economic trends closely to spur economic recovery underpinned by sustained growth momentum,” he said.