Invest KOREA

Korea's industrial activity increased for the second consecutive month in December 2023, suggesting a recovery driven by manufacturing production and exports.

Production in the mining and manufacturing industry increased in November, driven by improvements in semiconductors (+8.5 percent) on growing demands for high-performance semiconductors and stronger year-end auto production (+4.7 percent). Despite a decline in real estate (△3.7 percent), services production rose by 0.3 percent, with improvements in finance (+4.9 percent), transportation and warehousing (+2.5 percent), and leisure (+3.2 percent). Retail sales decreased by 0.8 percent due to an overall contraction in durable goods (△1.2 percent), semi-durable goods (△0.3 percent), and nondurable goods (△0.7 percent). Capital investment saw a 5.5 percent month-on-month increase, led by a strong growth in machinery [semiconductor equipment, etc.] (8.9 percent), despite a decrease in transportation equipment [automotive, etc.] (△3.2 percent). Despite an increase in civil works (6.8 percent), including the implementation of year-end SOC projects, construction fell by 2.7 percent, led by a significant decrease in building construction mostly in residential buildings (△5.6 percent). Despite increases in imports and the industrial production index of the mining and manufacturing industry, the cyclical change in the coincident index fell for the seventh consecutive month due to a sharp decline in construction completed. The recent economic recovery has been driven by manufacturing production and exports, coupled with a sluggish domestic consumption, which poses potential upside and downside risks going forward. On the production side, the recent improvement in exports, the rebound in key industries such as semiconductors, and the release of new mobile products are positive, but uncertainty over the recovery of major economies and the direction of their monetary policies, as well as continued geopolitical unrest and supply chain risks, continue to weigh on the economy. As for consumption and investment, slowing inflation and improving consumer sentiment, investment cooperation with major countries resulting from the government’s active sales effort and successful competition in high-tech are positive factors, while household debt, real estate PF risks and sluggish construction orders are negative factors.

‘Auto Production in November 2023 Fell Year-on-Year Due to Last Year’s Base Effect’
→ Despite falling exports of auto parts, exports in December 2023 increased by 10.2 percent year-on-year due to strong exports of finished vehicles. Imports in November 2023 decreased by 22.6 percent year-on-year due to sluggish in demands for internal combustion engines and related parts. November 2023 production fell by 2.0 percent from a year ago due to the base effect of November 2022, when production increased after the easing of the parts supply problem.

‘Exports Rose for Five Straight Months Amid Declining Production and Shipments and Falling Capacity Utilization Rate’
→ In November 2023, production and shipments fell due to the base effect of November 2022, when a large number of ships were shipped. Meanwhile, the industry’s production capacity increased and the capacity utilization rate continued to decrease. Despite decreases in production and shipments, ships ordered during the high price period were delivered. As a result, exports increased by 47.2 percent in December 2023 to grow for five months in a row. Imports fell by 33.2 percent in November 2023, imports of offshore structures and shipbuilding materials decreased overall.

‘Amid Sluggish Production, Exports Increased for Nine Straight Months, But at a Slower Pace’
→ Despite growing exports, production declined by 13.8 percent year-on-year in November 2023 due to the delayed recovery of domestic consumption. In December 2023, exports increased by 2.2 percent year-on-year as exports to the US continued growing and those to the Middle East shifted to an upward trend alongside weak exports to Japan and the EU. In November 2023, imports decreased by 4.7 percent year-on-year to decline for five straight months due to the delayed recovery of the manufacturing industry and the subsequent contraction in capital investment.

‘Exports Continued the Downward Trend in December 2023, Affected by Falling Unit Prices’
→ As the downturn in the construction industry continue to dampen demands for bar steel, production increased by 17.5 percent year-on-year in November 2023, led by the recovery of the automotive, machinery, and shipbuilding industries and the base effect of the previous year's production disruption. Despite growing exports of plate steel and other products, exports fell by 4.7 percent from a year ago in December 2023 due to sluggish demands from China and lower unit prices. In November 2023, imports saw a decrease of 7.3 percent year-on-year as domestic consumption of major construction steel products including H-steel and rebar remained weak and unit import prices fell.

‘Exports Fell in December 2023 as Weaker Refining Margins Dampen Unit Prices’
→ Production in November 2023 increased by 3.4 percent year-on-year as Korean refineries increase capacity utilization rates in light of improved domestic consumption and exports. Despite growing volume, exports declined by 3.5 percent year-on-year in December 2023 due to falling unit prices.

‘December 2023 Exports Fell by 2.7 percent Year-onYear as the Recovery of the Smartphone Market is Delayed Amid Expected Growth of Semiconductor Market and Related Industries in 2024’
→ Exports of finished smartphone products surged (84.6 percent), but overall exports declined by 2.7 percent year-on-year in December 2023 alongside slower exports of parts (-8.3 percent). The global smartphone market is expected to recover in 2024, driven by the possibility of interest rate cuts in major countries, the recovery of consumer sentiment boosted by stabilized oil prices and inflation, and the launch of new products (e.g., AI phones). Production saw a 5.4 percent year-on-year decrease in November 2023 but is gradually improving after three consecutive quarters of declining production and rising inventories. Imports grew by 42.8 percent from a year ago in November 2023, mostly in smartphones.

‘Semiconductor Industry Gradually Turning Upward’
→ In November 2023, the semiconductor production index stood at 154.2 to increase dramatically from a year ago (by 42.4 percent) as well as from a month ago (by 12.8 percent). In December 2023, exports reached USD 11.03 billion to exceed USD 10 billion for the first time in 2023.

‘Despite the Recovery in Q4, Annual Exports Fell Due to Economic Slowdown.
→ Production continued to decline in November 2023, affected by the ripple effect of LCD facility closures. In December, higher panel prices pushed exports upward by 10.9 percent to enable exports to grow for five months in a row. In 2023, annual exports of displays fell by 12.1 percent as global economic slowdown dampened demands.