Economic Indicators Collapsed Due to COVID-19

Industrial Production and Consumption See Largest Decline Since 2011

Coincident Index Cyclical Component Drops to Financial Crisis Levels

[Asia Economy Reporters Eunbyeol Kim, Sangdon Joo (Sejong)] Economic indicators are plummeting due to the spread of the novel coronavirus infection (COVID-19). Last month, industrial production and consumption fell at the largest rate since February 2011, when the foot-and-mouth disease outbreak occurred. The coincident index cyclical component, which reflects the current economic situation, also recorded a decline comparable to the global financial crisis. This means the COVID-19 shock is materializing in the real economy. Corporate sentiment has also dropped to its lowest level since the global financial crisis.

According to the February industrial activity trends released by Statistics Korea on the 31st, total industrial production (seasonally adjusted, excluding agriculture, forestry, and fisheries) decreased by 3.5% compared to the previous month. Production fell across all sectors including mining and manufacturing (-3.8%), manufacturing (-4.1%), services (-3.5%), and wholesale and retail trade (-0.4%). In particular, automobile production dropped by 27.8% due to supply disruptions of Chinese-made wiring harness parts. This is the largest decline in 13 years and 7 months since July 2006 (-32.0%), when the automobile industry experienced a strike.

The average operating rate of manufacturing was 70.7%, down 4.9 percentage points from the previous month, while the inventory ratio rose 4.1 percentage points to 118.0%, marking the highest level since September 1998 (122.9%). Service sector production also plunged sharply in accommodation (-23.5%), food services (-15.9%), air passenger transport (-42.2%), railway transport (-43.8%), and travel agencies (-45.6%).

Consumption was also hit hard. The retail sales index fell 6.0% compared to the previous month, the largest decline since February 2001 (-7.0%). Investment remained sluggish. Facility investment and construction output (constant prices) decreased by 4.8% and 3.4%, respectively, compared to the previous month.

The coincident index cyclical component, an indicator diagnosing the economy, plunged 0.7 points from the previous month, while the leading index remained flat. Statistics Korea believes the leading index has yet to reflect the rapidly changing current situation. There is a significant risk that the indicators will worsen further.

Corporate sentiment also plunged to its lowest level since February 2009, right after the global financial crisis. The decline in March was the largest ever recorded. The Business Survey Index (BSI) released by the Bank of Korea on the same day reflects companies’ perception of the economic situation; a value below 100 means more companies view the economy pessimistically than optimistically. In particular, the non-manufacturing business performance BSI recorded an all-time low of 53. The decline was centered on wholesale and retail trade (-14 points), information and communication (-21 points), and professional, scientific, and technical services (-20 points).