Invest KOREA

In August 2023, Korea's industrial activity recorded the biggest growth since February 2021, with production rising in all sectors, including mining and manufacturing.

Production in mining and manufacturing industries rose by 5.5 percent in August as the outlook for growing demands for high-performance semiconductors boosted production and drove the production of semiconductors and machinery and equipment upward by 13.4 percent and 9.7 percent, respectively. Service industry production increased by 0.3 percent, with leisure up 6.2 percent and food and lodging up 3.0 percent, driven by improved weather conditions that boosted outdoor activities. Retail sales fell by a total of 0.3 percent, as sales of durable and semi-durable goods declined by 1.1 percent and 0.6 percent, respectively, despite a 0.2 percent increase in the sales of nondurable goods. Capital investment increased by 3.6 percent as machinery improved slightly by posting a 0.6 percent growth and transportation equipment jumped by 13.1 percent. Construction investment rose by 4.4 percent as civil engineering projects, which had been sluggish in the previous month due to heavy rains, improved sharply to jump by 13.8 percent, and construction projects also increased by 1.8 percent. The cyclical change in the coincident index fell for three straight months due to declines in retail sales and imports, but the decline narrowed by 0.5 percent from the previous month. Uncertainties remain amidst growing signs of an economic rebound. On the production side, there are positive factors such as the recovery of exports led by semiconductors, expectations over the US economy making a soft landing, and the resumption of China's group tourism. At the same time, higher oil prices, the possibility of prolonged high global interest rates, and continued economic uncertainty in major economies are burdening the economy. As for consumption and investment, favorable employment conditions, accumulated household savings, and continued investment demands mostly in high-tech industries are positive factors, but slow construction orders and household debt burdens are risk factors.

‘Domestic consumption turned upward backed by continued strong exports’
→ In August, domestic consumption increased by 0.7 percent year-on-year and turned upward again in a month as car producers offered more promotions. Brisk sales in major markets in North America and the EU pushed August exports upward by 21.8 percent from a year ago. In July, imports fell by 14.1 percent year-on-year to record the first decline in 2023, affected by the end of the individual consumption tax cut and production cut of some makers. In July, strong global demand pushed production upward by 6.2 percent year-on-year.

‘Production and exports up, but capacity utilization rate and shipments stagnated’
→Cumulative global ship orders from January to August 2023 fell by 22.2 percent year-on-year due to deteriorating conditions for buyers, such as interest rate hikes. Orders won by Korean shipbuilders decreased by 41.8 percent as they received orders selectively, but the order backlog rose to 39.86 million CGT in August, which is the highest since 2011. August exports posted a 35.2 percent year-on-year increase as shipbuilders started delivering ships ordered at high prices after August 2021, and container ships were delivered in bulk. In July, imports fell by 35.0 percent from a year ago despite increased production, mainly affected by a 41.5 percent drop in cargo ship imports.

‘Slump in domestic consumption worsened, and exports continued growing for five straight months’
→ Despite growing exports, production in July declined both year-on-year (by 14.5 percent) and month-on-month (by 7.1 percent) as the slowdown in domestic consumption worsened. Exports remained strong in most regions except China and increased by 3.2 percent year-on-year to USD 4.132 billion in August. Imports fell by 11.7 percent year-on-year to USD 2.432 billion.

‘Production turned downward month-on-month due to summer off-season, and exports fell further’
→Despite the recovery in automotive, shipbuilding, machinery and other industries, steel production decreased by 5.6 percent year-on-year in July due to sluggish demand for steel in the construction industry. In August, declining exports to major importers including ASEAN, China and the United States and falling unit prices resulted in exports decreasing by 11.2 percent year-on-year. Imports fell by 23.8 percent year-on-year in July, due to slow domestic consumption leading to falling import volume and a sharp cut in import unit prices.

‘Exports continued plummeting as unit prices fell and volumes shrank’
→ In July, production posted a 9.3 percent decline with domestic consumption and export volumes falling together, and inventories fell by 11.5 percent. In August, exports plummeted by 35.3 percent year-on-year to USD 4.29 billion as export volumes and unit prices dropped together.

‘August exports fell by 7.8 percent, but rebound expected after Q4 as declines narrowed’
→ xports are falling as global smartphone demand continues to be sluggish, but a full-fledged rebound is expected after the fourth quarter of 2023 or the first half of 2024 as consumer sentiment gradually lifts after the third quarter. Sales of ICT consumer goods such as smartphones and tablet computers and semiconductors are projected to recover in 2024, but the timing and extent of recovery remain highly uncertain. In July, production dropped by 12.3 percent year-on-year and shipments fell by 10.6 percent as the global smartphone market continued shrinking. The number of Korea's mobile telecommunication subscription lines increased by 3.5 percent year-on-year and by 0.2 percent month-on-month in July. In the same month, the number of subscriber-based devices (tablet computers, wearable devices, etc.) and IoT lines increased by 11.0 percent and 27.3 percent year-on-year, respectively. Imports in July grew by 15.2 percent from a year ago, supported by an increase in imports of smartphone parts.

‘Semiconductor industry showed unstable performance despite expectations of a recovery’
→ In July, semiconductor production fell by 14.8 percent from a year ago and also declined from the previous months to sustain the unstable situation. In August, exports fell by 20.6 percent year-on-year to USD 8.559 billion to decline for thirteen months in a row after ending a long-term rally. The outlook for the Korea's semiconductor industry remains unclear due to the delayed global economic recovery and China's sluggish economy.

‘Exports turned upward, driven by the release of new smartphones’
→Production in July continued declining with fewer users replacing their IT products. In August, the release of new smartphones and the base effect drove panel exports upward by 4.1 percent and ended the decline that lasted for fourteen straight months. Industrial production and exports are expected to continue growing, supported by the base effect and the release of new smartphone that will boost demands.