Korea's output, capex turn positive in May, but growth sustainability uncertain

South Korea’s factory output marginally improved from the previous month in May, together with corporate investment after a triple fall in April, but it remains to be seen whether industrial activity would sustain growth against multiple scourges on the global and domestic demand from strong prices.

According to data released by Statistics Korea on Thursday, the seasonally adjusted mining and manufacturing output in May gained 0.1 percent from a month ago on increased production of machinery equipment (6.2 percent), automobiles (1.8 percent), and medicine and medical supplies (4.8 percent).

Electronics components output, however, fell 13.8 percent on reduced demand for organic light emitting diodes (OLED) on sluggish smartphone sales.

Against pandemic-stricken year-ago period, output was 7.3 percent higher.

Manufacturing output alone also edged up 0.1 percent on month and 7.8 percent on year in May. Factory operation averaged 75.7 percent, down 1.0 percentage point from the previous month. Inventory levels were down 1.8 percent on month but up 11.9 percent on year.

Financial markets stayed weak on deepening pessimism about the economy.

The benchmark Kospi fell 0.71 percent to 2,361.11 on Thursday morning while the U.S. dollar rose 1.8 won to 1,299.3 won from the previous closing.

Overall industrial output after counting in services activity in May also gained 0.8 percent on month, rebounding from 0.9 percent on month contraction in April.

Service output rose 1.1 percent in May as arts, sports, and leisure sector gained 6.5 percent, accommodation and restaurant 4.3 percent, transportation and warehouse 2.9 percent, and wholesale and retail 1.2 percent. Service activity rose for a third straight month after 1.6 percent gain in March and 1.1 percent in April.

Statistics Korea attributed improved service output to increased outdoor activity on pleasant weather and less concern about Covid-19 infection.

Corporate spending increased 13 percent on month in May, turning positive after three months of decline.

“Investment gained after issues related to component procurement were resolved,” said Eo Woon-seon, an official from Statistics Korea.

Construction output increased 5.9 percent.

Private consumption stayed negative amid high prices.

Retail sales, a gauge of private consumption, fell 0.1 percent on month in May, heading south for three straight months for the first time in two years.

Sales of durable goods like automobiles were up 1.2 percent in May but those of semi-durable goods like clothing and non-durable goods like medical products fell 1.2 percent and 0.3 percent each.

The cyclical component of composite coincident index, which measures present economic activities, was up 0.1 points to 102.2, breaking two straight months of decline. The cyclical component of composite leading indicator, which predicts the turning point in business cycle, also added 0.1 point to 99.4, the first rise in 11 months.

“Overall industrial output turned positive in May on the back of robust service output,” Eo said. “Domestic spending led by facility investment also improved.”

The government stayed conservative about outlook.

The Ministry of Economy and Finance noted that factory activity in May has been aided, but the outlook remains foggy due to the prolonged Russia-Ukraine war and monetary tightening by major economics.

The recent strike by cargo truck drivers could turn the headline figures negative in June, it added.

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