Korea’s finance ministry cites chip woes as economic risk

2019.01.11 14:07:34 | 2019.01.11 14:57:44

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The South Korean government, having turned negative about business conditions since October, warned of worsening economic signs from the slowdown in the semiconductor industry that buttressed exports throughout last year and the ongoing trade conflict between the United States and China.

“Exports and consumption overall maintain signs of growth, but investment and employment data are in correction. The U.S.-China trade war and slowdown in the semiconductor industry are adding to uncertainties,” the Ministry of Economy and Finance said Friday in its latest Green Book, a monthly report on domestic economic conditions.

The ministry until last September kept an upbeat tone about the economy, upheld by what it saw as sustained recovery in exports and domestic consumption. But since October, it omitted the words “recovery” and “improvement” from its report and began to focus more on uncertainty and market risks.

Korea’s export-driven economy could take a huge hit once semiconductors, which represent 20 percent of the country’s total shipments, enter a prolonged down cycle. Fears of an impending slowdown were already felt in the latest earnings guidance of Samsung Electronics, the world’s largest producer of memory chips and smartphones. Last week, the electronics giant shocked the markets when it expected its fourth-quarter operating profit to plunge 39 percent on month and 29 percent on year, far lower than market estimates and its poorest performance in nearly two years.

According to the latest Green Book, industrial production in November 2018 slid 0.7 percent on month, with output down 1.7 percent in manufacturing and 0.2 percent in the services sector.

Facilities investment shrunk 5.1 percent over the same period due to reduced investment in transportation equipment like machinery and automobiles. The construction sector also retreated 0.9 percent, extending its 1.8 percent decline in the previous month, as the 5.3 percent gains in civil engineering were offset by the 2.8 percent fall in building projects.

Consumption in November grew by a mere 0.5 percent on month. Underscoring the widening income gap, sales at department store rose 0.5 percent and domestic passenger cars 3.3 percent, whereas sales at hypermarkets where the working class shop for groceries slumped 3.6 percent on year in December, the report showed.

By Chung Seok-woo and Kim Hyo-jin

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