According to a report released by Statistics Korea this week, South Korea’s factory output has dropped a disappointing 2.8 percent from a year earlier in April – worse than the estimated 1.3 percent decline that had been predicted by economists.
The figure is released as the South Korean won posted its worst monthly decline since July 2015. Production of electronic components fell 12.7 percent from a year ago, while output of cars and machinery dropped 8.7 percent and 9.5 percent, respectively. “The negative factory output data trend shows that the foundations of growth are weak,” says Suh Dae Il, an economist at Mirae Asset Daewoo Securities.
An inventory-to-shipment ratio of 124.2% is a concerning sign of weak export demand, as manufacturers stockpile unsold goods at warehouses. Worryingly, exports have been in continual decline for the last 16 months. Weak demand has left factory activity low across Asia, as the region’s export-driven businesses struggle for new orders in a slow global economy. It is expected that corporate restructuring of South Korean shipbuilders and shipping companies will further continue to hurt domestic demand and contribute to low business confidence.
Despite the gloomy data, the Bank of Korea maintains that domestic demand is in good form, and will support growth. Also on the positive side, shipments in the first twenty days of May have risen by 2.7% on an annualized basis, this better-than-expected data offering some hope of an end to the trend of declining exports.
Meanwhile, South Korea’s Ministry of Strategy and Finance has said in a release that “The government will put more policy efforts into expanding recovering momentum in the latter half of the year”. The Ministry also says that it is strengthening its monitoring of the global financial and foreign currency markets in order to stave off any fallout of external risks.
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