September 28, 2022

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South Korea’s industrial output, consumption and investment all fell in April as higher raw material prices and supply chain disruptions weighed on Asia’s fourth-largest economy, data showed on Tuesday. 

It was the first time in two years that all three indicators fell in the same month.

Factory output in April shrank by a seasonally-adjusted 3.3 per cent from a month earlier, falling for the first time in seven months and marking its biggest decline since May 2020. But output in the service sector increased 1.4 per cent. 

Facility investment decreased 7.5 per cent last month, bigger than a 2.2 per cent fall in March. Facility investment also fell for the third consecutive month, as companies delayed investments amid growing supply chain risks and rising material prices.

Retail sales declined 0.2 per cent last month, after a 0.7 per cent fall in March. 

The data signal slowing growth momentum even though the South Korean economy has recovered quickly from the pandemic. Officials said the export-driven economy was facing growing uncertainty, citing increasing inflationary pressure due to the war in Ukraine and supply chain disruptions triggered by China’s pandemic lockdowns. 

People walk in the Myeongdong shopping district of Seoul
South Korean officials said the export-driven economy was facing growing uncertainty © Ed Jones/AFP/Getty Images

Economists at Goldman Sachs said the contraction in industrial output was much sharper than expected and broader across most sectors, despite the service sector improvement.

“The divergence could be sustained through the second quarter, given China’s slowdown and contractionary impact of monetary tightening in Korea’s major trade partners,” they said in a report on Tuesday. 

The Bank of Korea last week raised its benchmark interest rate by a quarter point to 1.75 per cent in the fifth rise since last summer and downgraded its growth forecast for this year to 2.7 per cent from the 3 per cent forecast made in February.

The South Korean government on Monday approved a record supplementary budget of Won62tn ($49.3bn) to shore up small businesses hit by the pandemic.