Cyclical Components of Coincident and Leading Composite Indexes Continue to Rise
Prolonged Slump in the Construction Sector
Last month, overall industrial production, retail sales, and facility investment all declined. This marks a triple decrease for the first time in three months since January, reflecting a sluggish economic situation. However, the coincident composite index and leading composite index, which can indicate the current economic trend and outlook, showed a slight upward trend. In addition, compared to the same month last year, both production and investment posted positive growth, suggesting that there is some potential for the economy to improve going forward.
According to the "April 2025 Industrial Activity Trends" released by Statistics Korea on the 30th, overall industrial production last month fell by 0.8% compared to the previous month. After a significant drop in January (-2.9%), production increased in February (0.7%) and March (0.9%), but declined again after three months of growth.
Cho Sungjoong, Director of Economic Analysis at the Ministry of Economy and Finance, explained, "Overall industrial production turned negative due to the base effect after two months of increases. Although this month shows a negative figure, it cannot be considered bad when viewed on a year-on-year basis." On a year-on-year basis, overall industrial production increased by 0.4%, marking three consecutive months of positive growth.
Semiconductor production, which had increased by 12.2% in the previous month, declined by 2.9% compared to the previous month. Automobile production also fell by 4.2% as the tariff impact from the Donald Trump administration in the United States began to take effect in earnest. Automobile production had been increasing for four consecutive months since December last year (8.0%), but has now turned negative.
Lee Doowon, Director of Economic Trend Statistics at Statistics Korea, stated, "For automobiles, Hyundai Motor Group's electric vehicle plant in Georgia, United States, began full-scale operations in March, and with the mixed effects of tariffs, production decreased mainly in eco-friendly vehicles and special-purpose vehicles."
Semiconductor production appears to remain robust. Director Lee explained, "Semiconductor production reached an all-time high last month, so the decrease this month should be seen as a base effect. On a year-on-year basis, double-digit growth continues." On a year-on-year basis, semiconductor production increased by 21.8% in April, following a 20.3% increase in March.
It is still difficult to say that the impact of the 25% steel tariffs imposed by the Donald Trump administration since March has been fully realized. Production in the primary metal manufacturing sector increased by 1.0% in April compared to the previous month. Director Lee commented, "Given the unfavorable conditions in the steel industry and the presence of irregular factors such as facility maintenance and strikes, it is difficult to determine the impact of tariffs based solely on the April data."
Facility investment decreased by 0.4% compared to the previous month. After a sharp decline in January (-17.2%), investment appeared to recover in February (21.3%), but turned negative again for two consecutive months in March (-0.6%) and April. While investment increased by 9.9% in transportation equipment such as automobiles, it decreased by 4.5% in machinery, including semiconductor manufacturing equipment. On a year-on-year basis, facility investment increased by 8.4%, driven by a 19.8% rise in transportation equipment including automobiles. This marks the third consecutive month of positive growth, following 8.0% in February and 14.5% in March.
The slump in the construction sector appears to be prolonged. Construction completed (measured by work done) decreased by 0.7% last month, following a 5.0% drop in March, despite a brief recovery in February (3.0%) after a decline in January (-4.5%). While civil engineering increased by 6.6% compared to the previous month, construction in the building sector decreased by 3.1%, resulting in an overall negative trend. Construction orders fell by 17.5% year-on-year, marking the largest decline in 15 months since January 2024 (-35.3%).
Indicators reflecting domestic demand continued to show sluggishness in April. Retail sales, which reflect consumption trends, fell by 0.9%. After a decline in January (-0.6%), retail sales appeared to rebound in February (1.8%), but have now decreased for two consecutive months since March (-1.0%). This is due to declines in sales of semi-durable goods such as clothing (-2.0%), durable goods such as communication devices and computers (-1.4%), and non-durable goods such as pharmaceuticals (-0.3%).
Service sector production also decreased by 0.1% compared to the previous month. However, wholesale and retail trade production increased slightly by 1.3%. In March, it had decreased by 3.5%. Director Lee explained, "Last month, the launch of new car models led to an increase in passenger car sales, and the impact of duty-free shop discounts resulted in a partial increase in wholesale trade related to daily necessities." Duty-free shop sales increased by 8.4% compared to the previous month, and retail sales of passenger cars and fuel also rose by 2.3%.
The coincident composite index, which gauges the current state of the economy, rose by 0.2 points to 98.9, marking a three-month upward trend since February. The leading index, which forecasts future economic trends, rose by 0.3 points to 100.9, also marking a three-month consecutive increase since February.
The government believes there is room for improvement in the coming months. Director Cho stated, "Although the coincident composite index fluctuates with repeated increases and decreases on a monthly basis, the overall trend is upward." He added, "Leading indicators related to domestic demand sentiment have been rising since May, and as manufacturing production remains solid, the key will be how well exports can withstand downside risks such as the impact of tariffs." According to the Consumer Sentiment Survey for May, released by the Bank of Korea on the 27th, the Consumer Composite Sentiment Index (CCSI) rose by 8 points compared to the previous month. This is the largest increase in four years and seven months since October 2020 (+12.3 points).
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