Higher plant utilization rate inspires confidence in biz recovery

Expectations are high for economic recovery in Korea as industrial production and consumption indicators have rebounded.

The indicators have begun to show signs of improvement, and even stagnant exports have recovered, elevating plant utilization. This has inspired the government to encourage bold corporate investment for the future.

According to an industrial activity report by Statistics Korea released Friday, mining and manufacturing production rose 2.3 percent in November from the previous month, the biggest rise since 3.2 percent in January. The industrial index of mining and manufacturing, including but not limited to manufacturing, mining, electric and gas, had seen minus growth from June to August but grew 0.7 percent in September and remained positive over the next three months.

On top of this improvement, the indexes of the service and construction industries also rose and recorded 0.8 percent and 1.9 percent, respectively, contributing to a rise of 1.1 percentage points in the industrial index from the previous month.

Economic indicators are also sending positive signals. The coincident composite index’s cyclical fluctuation, which predicts future economic situations, rose 0.1 percentage point from the previous month, while the leading composite index’s cyclical fluctuation also edged up 0.3 percentage points over the same period. This was the first time since July that the two indicators rose at the same time.

The retail sales index also jumped 2.3 percentage points in November from the previous month thanks to higher clothing and food consumption.

Capital investment, however, fell 0.3 percent from the previous month for its second straight month of decline. This was the only one of the three major economic indicators of production, consumption and investment that did not rebound.

Apparently encouraged, however, the government has maintained a conservative stance by saying, “It will take time for us to determine whether this will lead to economic recovery.”

Strategy and Finance Minister Bahk Jae-wan told a ministerial meeting on prices, “We might cautiously say it could be seen as a sign of economic recovery, but capital investment remains sluggish. Now is the time for businesses to preemptively make bold investment in preparation for full-fledged economic recovery.”

Jeon Baek-geun, an industrial trends researcher at Statistics Korea, said, “The coincident composite index`s cyclical fluctuation barely managed to turn positive this time. This needs to continue for at least six months for us to be able to say the economy is really recovering.”

While remaining cautious in predicting economic trends, the government apparently seems to have been encouraged by the increase in business production thanks to a rise in exports. Exports continued to fall in the third quarter but turned positive from October, and November’s average plant utilization was 77.5 for its third consecutive month of rise.

Experts warn, however, that it is premature to believe that the economy will recover soon because temporary variables such as the effects of economy-boosting policies, including a cut in the individual consumption tax for cars, and temporary sales rise from clothing sales in the cold winter time will disappear.

Shin Chang-mok, a senior researcher at Samsung Economic Research institute, said, "Economic growth will likely continue to be slow into next year because problems remain vis-a-vis the European fiscal crisis and U.S fiscal cliff. The figures in economic indexes are not enough to conclude that the economy is recovering.”

jarrett@donga.com