South Korea’s factory output fell again in July to reach its longest stretch of declines in decades as the trade-reliant nation struggles with exports amid a global slowdown.
(Bloomberg) — South Korea’s factory output fell again in July to reach its longest stretch of declines in decades as the trade-reliant nation struggles with exports amid a global slowdown.
Industrial production dropped 8% from a year earlier in July, resulting in a 10th consecutive fall, according to data released by Statistics Korea on Thursday. That’s worse than the 6% decrease forecast by economists surveyed by Bloomberg. From a month earlier, it slipped 2%.
The sequence of year-over-year falls now extends beyond the nine months of declines during the global financial crisis and is the longest on available data back to 1976.
While contractions have narrowed since early this year, suggesting the slump has already bottomed out, the ongoing weakness in the manufacturing sector adds to factors keeping the central bank from further tightening when credit risks also linger in the property sector.
The decline in factory output since October correlates with a fall in exports and underscores the challenges faced by South Korean manufacturers as China struggles to rebound from the impact of its Covid lockdowns and global central banks maintain restrictive policy to rein in inflation.
Policymakers are hoping for improvement toward the end of the year in exports, pointing to the increasing volume of semiconductor shipments in particular. Korea relies heavily on technology exports such as memory chips to underpin its economic growth.
What Bloomberg Economics Says…
“Overall industrial output weakened with both consumption and facilities investment contracting, suggesting greater downside risks for the economy. The shaky economic recovery will add to challenges for the Bank of Korea in conducting its monetary policy.”
—Hyosung Kwon, economist
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Growth in semiconductor inventories weakened for a second consecutive month in July, suggesting demand could be picking up. Still, automobile inventories grew from a year earlier at a faster pace than the previous month, the data showed.
“The outlook is definitely improving for chips, but other sectors may keep struggling,” said Jang Woo-ae, an analyst at the IBK Economic Research Institute. “China’s another uncertainty with no immediate prospect for an economic rebound.”
The chance for a rate cut by the Bank of Korea to shield the economy remains minimal as well, she said, given the Federal Reserve remains hawkish with a debate ongoing over whether it will hike US rates again next month.
The purchasing manager’s index for Korean manufacturing has also shown factory sector activity contracting since July last year but has strengthened from earlier levels, also suggesting the worst of the slowdown is likely over. PMI and trade numbers for August will be released Friday.
(Updates with economist comment)
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