Domestic production, consumption, and investment all fell in April. The all-industry production index (2020=100) for April, released by Statistics Korea on the 29th, stood at 117.8, down 0.6% from the previous month. While semiconductor production rode the supercycle wave to grow 3.1% and continued its boom, output across major industries excluding semiconductors contracted sharply. Petroleum refining production, hit directly by the war in Iran, plunged 19.4%, and the automobile sector fell 10%. Beyond production, the retail sales index, which reflects goods consumption, also fell 3.6% from the previous month. Facility investment dropped 3.6% from the previous month as investment in transportation equipment declined.
Despite this "triple decline" in real-economy indicators, Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol downplayed its negative significance, saying it was "a temporary adjustment due to factors such as the base effect from the high growth of the preceding period." He went on to express optimism, saying, "In May, both consumption and corporate sentiment are rising sharply, and the strong export momentum is continuing, so the improvement trend is expected to resume." Furthermore, even though companies face the burden of high exchange rates and high oil prices and are highly nervous about the possibility of a rate hike, Kim Yong-beom, the Presidential Office's chief of policy, diagnosed the "three highs" of high interest rates, high inflation, and high exchange rates as "a cost of success that accompanies the Korean economy's leap to a new dimension—not a harbinger of crisis, but the friction noise of a leap forward."
The "triple decline," in which domestic production, consumption, and investment all contracted at once, is the first such occurrence in eight months since last August, and it cannot be taken lightly. Moreover, the Korean economy has recently shown a clear growth illusion resting on the ultra-powerful engine of semiconductors. Excluding semiconductors, the vitality of major industries is in fact falling sharply. Export indicators are also troubling. Last month, exports declined in 7 of Korea's 15 key export items, including automobiles, steel, and home appliances.
It is fortunate that semiconductors are leading a new growth phase for our economy. However, if we become intoxicated by the memory boom and the stock market surge and leave the "K-shaped polarization" unaddressed, there is no telling when the stock market—and indeed the entire economy—could be swayed and shaken by variables in a specific industry. Now is the time to hurry a complex policy response that preemptively manages risk factors such as overheating in asset markets and rising prices, without undermining the recovery trend in the growth rate.
