The production of all industries increased in May 2022, driven by dramatic increases in the mining & manufacturing industries and the construction industry. In terms of expenditure, the value of construction completed and equipment investment increased sharply while retail sales decreased slightly.
The production of the mining & manufacturing industries slightly grew thanks to a partial resolution of supply chain disruptions. The production of machinery and cars increased, supported by the delivery of semiconductor equipment and a partial resolution of disruptions in the auto parts supply chain. The service industry posted a growth rate surpassing 1% for three consecutive months, driven mainly by favorable conditions for face-to-face service industries including fewer COVID-19 daily cases and rainy days. Retail sales decreased slightly as the improved pandemic situation continued to cut the consumption of non-durable goods including drugs and home meals. However, overall consumption appears to be on a recovery track. Additional working days secured by fewer rainy days and progress in the construction of semiconductor plants pushed up construction investments significantly, thereby making up for much of the decrease in early 2022.
Whereas the industrial performances in May confirmed that the Korean economy is on recovery track, external risks continue to pose significant uncertainties in the economic cycle. In terms of production, the recovery of production in the service industry and a partial resolution of supply chain disruptions pose positive signs, while disruptions in some industries – triggered by the strike of unionized truckers in June – may temporarily undermine recovery. In the cases of consumption and investment, there are positive factors including the return to normalcy after the pandemic, improvements in the employment cycle, the passing of the government’s second supplementary budget drawn to assist small businesses and vulnerable classes, and the announcements of large-scale mid-to long-term investment plans by major South Korean enterprises as well as uncertain factors such as inflation, worsened volatility of the financial market, and weakening economic sentiment. Exports may be buoyed by the double-digit growth rates of average daily exports and the lifting of lockdowns in China while affected by the risk of major countries’ tight fiscal policies pushing the global economy on a downward trend and triggering changes in consumption patterns.
※ Source: Ministry of Economy and Finance (moef.go.kr)
Trends by industry
Auto ‘Continued growth of exports and reduced fall in domestic consumption’ → Production and shipment in April 2022 decreased by 2.4% and 0.2%, respectively, from the same period of the previous year due to the lockdown in Shanghai imposed to stop the spread of COVID-19 and the shortage of semiconductors used in cars, and the capacity utilization rate also fell slightly by 0.1%. Domestic consumption continued the downward year-on-year trend in May, but the drop was significantly reduced. In May, increased exports of cars to the United States, the Middle East, and Latin America pushed up exports by 18.9%.
Shipbuilding ‘Continued improvements in production indices and increases in exports and imports’ → As production, shipment and capacity utilization rate continued to grow year-on-year - boosted by the launch of production of orders won in droves in 2021 - exports in May increased by 44.8% from the same period of the previous year with the delivery of several large-sized tankers, LNG carriers and LPG carriers. Imports of ships grew dramatically by 84.5% year-on-year in April with the delivery of bulk carriers from China and tankers from Panama, while imports of ship engines also increased by 55.8% year-on-year.
General machinery ‘Increased fall in production and minor increase of exports’ → The fall in production increased in April, with production plunging by 10.2% year-on-year due to worsened slowdown of domestic consumption and equipment investment. Despite China’s COVID-19 lockdowns causing disruptions in production and logistics and reducing exports to China, exports grew slightly by 3.2% year-on-year in May, driven by the increased demands for machinery needed for active infrastructure investments in the US, Latin America, and the Middle East.
Steel ‘Production began to decrease due to sluggish domestic consumption, but exports continue growth’ → In April, production decreased by 4.1% year-on-year due to the prolonged crisis in Ukraine and higher raw material prices slashing the demands for auto, machinery, and other major industries that require steel, major repair of hot rolling mills, and reduced export volumes. In terms of amount, exports grew by 26.9% from the same period of the previous year in May, supported by the diversification of import channels to Europe and the Middle East in response to the reduced supply from Russia and by the increased demand from active infrastructure investments in India, ASEAN, and others.
Oil refining ‘Exports of petroleum products recorded best-ever results totaling USD 6.41 billion’ → In April, domestic consumption decreased by 3.2% due to high oil prices weakening the demand for transport oil, but production gained by 4.5% year-on-year, supported by the increased export volume of petroleum products used in transportation. In May, export amounts increased by 107.2% year-on-year as the continued high oil prices and the increased refining margins pushed export unit prices by 83.0%.
Wireless communication devices ‘Exports grew for four straight months, and capacity utilization rate began growth’ → Exports in May grew by 8.4% from the same period of the previous year, buoyed by the strong sales of new South Korean low-end 5G smartphones in China and India and supply chain disruptions and inflation increasing the unit prices of parts. In April, production and shipment decreased by 13.5% and 14.8%, respectively, and inventory increased by 22.6%, year-on-year due to the base effect of skyrocketed smartphone sales in 2021, the relocation of Southeast Asian production bases of South Korean enterprises and the prolonged crisis in Ukraine slowing the economic growth of major export destinations. In contrast, the capacity utilization rate increased by 7.6%, followed by an 11.2% growth in March.
Semiconductor ‘Strong exports of semiconductors continue’ → In April, semiconductor production and shipment increased by 35.0% and 15.5%, respectively, to continue the upward trend. Capacity utilization rate gained by 13.7% from the same period of the previous year, which shows South Korea’s effective response to increasing global demand. Despite lockdowns in China undermining production and the prolonged crisis in Ukraine worsening supply chain disruptions, exports were supported by the launch of new CPUs in the second half of 2022 and the continued inflow of AI-related investments and gained by 15.0% year-on-year to record USD 11.55 billion, which is the best results in all of May.
Display ‘Despite reduced demand, export volume maintained as added values push up prices’ → Production in April increased by 5.6% year-on-year, buoyed by the increased demands for OLEDs but fell by 4.0% month-on-month due to seasonal effects. Added sales channels of high value-added panels used in laptops and tablets pushed up demands despite the improved pandemic situation diminishing demands, enabling exports to grow by 0.1% in May and continue growth for 14 consecutive months. ※ Please be noted that the latest data available in Statistics Korea are for the previous month in the case of exports and the month prior to the previous one for production.
* Please note that the latest data available in Statistics Korea are for the previous month in the case of exports and the month prior to the previous one for production.
※ Source: Korea Institute for Industrial Economics and Trade(kiet.re.kr)
*This article is extracted from Invest KOREA information center, 2022.