In July 2023, Korea's industrial activity remained on track of a gradual recovery, with the decline in industrial production stemming from temporary factors.

Production of mining and manufacturing industries fell by 2% in July as semiconductor production cuts affected production to bring down semiconductor production by 2.3%, and machinery and equipment production by 7.1%. In the service sector, food and lodging fell by 0.9% and leisure by 2.3% due to bad weather, but telecommunications and finance and insurance both saw an increase of 1.5%, enabling the sector to grow by 0.4%. Retail sales fell by 3.2%, with durable goods, semi-durable goods, and nondurable goods declining by 5.1%, 3.6%, and 2.1%, respectively. Equipment investment decreased by 8.9%, with machinery, such as semiconductor equipment, and transportation equipment, such as automobiles, falling by 2.6% and 3.2%, respectively. Although heavy rain caused civil engineering projects to decrease by 3.5%, construction investment increased by 0.8% as apartment construction projects grew by 2.0%. The cyclical change in the coincident index fell for two consecutive months due to declines in the retail sales price index and imports, while the cyclical change in the leading index rose for three consecutive months, supported by improvements in most of the related indicators, including the inventory cycle index, economic sentiment index, and KOSPI. While downside risks have somewhat eased recently, uncertainties remain amid difficult domestic and international real economic conditions. On the production side, positive factors include a recovery in export volumes of semiconductors, expectations of the US economy making a soft landing, and the resumption of China’s group tourism. On the downside, there are concerns over the growing uncertainty of the Chinese economy caused by the real estate crisis and the risk of strikes at some production sites triggering potential temporary disruptions in production. For consumption and investment, there are positive factors such as a favorable employment situation, recovering sentiment, and accumulated household savings. At the same time, risks include a short-term adjustment in investment driven by semiconductor production cuts, uncertainties of the construction industry, and household debt burden.

‘Domestic consumption turned to a decline, affected by the termination of the individual consumption tax cut’
→ Domestic consumption in July fell by 5.4% year-on-year to decline for the first time since July 2022, as cars are no longer exempt from the individual consumption tax. In July, exports increased by 10.6% year-on-year, supported by high global demand for Korean vehicles. In June, production increased by 10.8% from a year ago on the back of continued export growth and strong domestic sales.

‘Production indicators weakened, but exports turned positive’
→ The decision made at the 80th meeting of the IMO MEPC to decarbonize the shipping industry by 2050 is expected to boost demands for eco-friendly ships and bring more opportunities for the Korean shipbuilding industry armed with advanced technology. Exports in July fared well as a number of LNG carriers, container ships, and VLCCs were delivered, but decreased by 30.9% due to the base effect of the delivery of offshore plants in July last year. In June, imports rose by 36.5% year-on-year as production ramped up to drive the imports of ships, marine engines and parts.

‘Production decline eased, and exports grew for four straight months’
→ In June, production contracted only by 0.9% year-on-year and recorded a month-on-month increase for two consecutive months, as exports strengthened despite a delayed recovery in domestic consumption. July exports rose by 3.2% from a year ago to USD 4.4 billion and grew for the fourth consecutive month, driven by demand for industrial production equipment and by infrastructure investment in major economies. Imports decreased by 3.5% year-on-year to USD 2.6 billion in June.

‘Sluggish domestic consumption caused production to continue declining, and exports turned downward due to lower unit prices’
→ In June, steel production decreased by 2.8% year-on-year, affected by the sluggish domestic construction industry and the subsequent decline in demand for related steel products. Despite an expansion in export volumes, July exports fell by 10.2% year-on-year due to lower unit prices. Imports in June decreased by 10.1% year-on-year as import unit prices plummeted despite strong imports from major countries.

‘Exports decreased by over 40% for two straight months due to falling unit prices and base effect’
→ In June, production fell by 6.5% due to the routine maintenance of Korea refineries, and inventories shrank by 12.3%. In July, exports fell by 42.3% year-on-year to USD 3.7 billion as volume and unit prices fell together.

‘ICT product slump continued in Q2, and July exports fell by 15.3% year-on-year’
→ After falling by 12.8% and 20.8% year-on-year in Q1 and Q2, respectively, exports again dropped by 15.3% year-on-year in July due to the delayed recovery in global smartphone demand. In June, production and shipments were down by 16.7% and 10.6% year-on-year, respectively. The number of mobile phone subscribers increased by 3.6% year-on-year (1.1% month-on-month) in June, while subscriber-based terminal lines increased by 11%, backed by an increase in the number of wearable device lines (34.9%). Revenue in June dropped by 19.1% from a year ago due to a decline in handset and parts revenue.

‘Uncertain outlook of the semiconductor industry’
→ In June, semiconductor production fell by 15.9% year-on-year, but rose by 3.6% from the previous quarter (month), suggesting that overall production is declining but stabilizing. The value of exports in July was USD 7.4 billion, down by 33.6% year-on-year to post a decline for twelve straight months after ending the long-term rally. In the global market, exports to China and Vietnam—major producers of electrical and electronic products—fell sharply due to a slump in industries that use semiconductors.

‘Exports continued declining for fourteen straight months due to falling panel unit prices’
→ June production continued to decline as the sluggish global economy weakened demand for panels. In July, panel exports fell by 4.6% due to weak LCD exports, causing exports to decrease for the fourteenth consecutive month.