'December 2022 and Annual Industrial Activity Trends'
December Production Drops Most in 32 Months
Leading Economic Index Declines for 6 Consecutive Months Since July
[Asia Economy Sejong=Reporter Song Seung-seop] Production in December last year, when the economic slowdown deepened, decreased by 1.6% compared to the previous month. This is the largest decline in 32 months since April 2020 (-1.8%). The leading index, which predicts the economy, recorded a decline for six consecutive months. On an annual basis, increases were seen in production, investment, and consumption sectors, but excluding the COVID-19 base effect, analysis suggests that signals of economic recession have strengthened.
Decline in Manufacturing Vitality and Semiconductor Economic Deterioration
According to the 'December 2022 and Annual Industrial Activity Trends' released by Statistics Korea on the 31st, total industrial production (original index, excluding agriculture, forestry, and fisheries) in December last year decreased by 1.6% compared to the previous month. Production in mining and manufacturing, including manufacturing, fell by 2.9%, and services decreased by 0.2% respectively.
In particular, the decline in vitality in the manufacturing sector was prominent. The 'average operating rate,' which shows the utilization of production facilities by manufacturers, was 70.3%, the lowest in 29 months since July 2020. The manufacturing production capacity index was 104.8, the lowest in 28 months since August 2020 (104.6).
Production decreased the most in 32 months since April 2020 (-1.8%). Production declined in automobiles (-9.5%) and electronic components (-13.1%), increasing the magnitude of the decrease. Kim Bo-kyung, Economic Trend Statistics Officer at Statistics Korea, explained, “Automobiles and parts saw a large decrease due to the overall global economic downturn and reduced mobile demand, leading to reduced production of finished cars and OLEDs.”
Production increased in semiconductors (4.9%) and others. However, quarterly data shows a trend of increasing production decline since the second quarter. This is due to the global semiconductor economic downturn causing a decrease in production throughout the year. The increase this month appears to be an adjustment of the previously significant decline in semiconductor production.
Consumption Up, Investment Down... Decline in Coincident and Leading Indices
The retail sales index increased by 1.4% compared to the previous month, turning positive after four months. Durable goods such as telecommunications equipment and computers decreased by 2.7%, but nondurable goods like cosmetics and semi-durable goods like clothing increased by 0.1% and 11.1%, respectively. This was influenced by the base effect of low retail sales in the previous month and colder-than-average weather, which increased winter medical purchases.
Facility investment decreased by 7.1%. Investment declined in machinery such as special industrial machinery (-7.8%) and transportation equipment including automobiles (-4.8%). Construction performance decreased by 9.5% compared to the previous month due to declines in construction (-10.9%) and civil engineering (-5.1%). In construction orders, civil engineering such as machinery installation increased by 16.3%, but office and store construction fell by 20.7%, shrinking by 9% compared to the same month last year.
The coincident index, which indicates the current economy, fell by 0.9 points from the previous month, and the leading index, which predicts future economic conditions, also dropped by 0.5 points. Generally, Statistics Korea interprets a change in the trend of the leading index sustained for more than six months as a turning point in the economic cycle. The leading index has recorded a decline for six consecutive months since July after rising by 0.1 points in June last year, reinforcing analysis that the possibility of an economic recession has increased.
Officer Kim Bo-kyung said, “We need to consider the recent weakening explanatory power of the leading index,” but added, “Various sentiment indicators and the weak KOSPI have generally pushed the leading index downward.” She also said, “The coincident index is used to interpret the primary signal of a phase change, and since it rose until October but fell for two consecutive months, it is too early to discuss an economic phase transition.”
2022 Production, Consumption, and Investment Increase: "COVID-19 Base Effect"
On the other hand, industrial production, consumption, and investment last year increased by 3.3%, 0.2%, and 3.3% respectively compared to the previous year, showing a 'triple increase' for two consecutive years. This is interpreted as the base effect continuing for the second year following the economic downturn caused by COVID-19 in 2020.
The total industrial production index (excluding agriculture, forestry, and fisheries) increased by 3.3% compared to the previous year. Production in mining and manufacturing, including manufacturing, rose by 1.4%, and service production also increased by 4.8%. Although electronic components and chemical products showed a decline, semiconductors and automobiles led the increase. Service production was weak in the real estate sector but increased in accommodation, restaurants, finance, and insurance.
The retail sales index showed a 2.9% decrease in durable goods sales such as home appliances, but semi-durable goods like clothing and nondurable goods like pharmaceuticals expanded by 2.3% and 0.9%, respectively. By retail type, supermarkets and general stores (-4.5%), large marts (-4.5%), and duty-free shops (-7.3%) showed a decline, while department stores (8.0%), specialty stores (1.0%), and convenience stores (4.4%) showed an increase.
Facility investment increased in special industrial machinery and automobiles/transportation equipment. Domestic machinery orders decreased by 19% in the public sector but increased by 3.5% in the private sector, growing by 1.8% compared to the previous year. Construction performance increased by 2.5% compared to the previous year, with civil engineering down by 1.9% but construction up by 4.1%.
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