Industrial Output Falls for Second Consecutive Month in May; Government Expects Semiconductor Rebound in June

Industrial production saw a decline for the second straight month in May, driven by a double-digit drop in semiconductor output.

The government attributed the decrease in semiconductor production to a temporary adjustment, forecasting a rebound to positive growth in June as triple-digit export growth figures are reflected in the data.

According to the May Industrial Activity Trends report released by the National Data Agency today (June 30), the all-industry production index (seasonally adjusted, excluding agriculture, forestry, and fisheries) stood at 117.7 (2020=100), down 0.3% from the previous month.

Total industrial production, which had risen by 2.1% in February and 0.4% in March, has now declined for two consecutive months following a 0.4% drop in April.

This marks the first time industrial production has fallen for two months in a row since July and August of last year.

Mining and manufacturing output decreased by 3.0% from the previous month.

Semiconductor production fell by 10.0%.

This was the largest decline since October of last year (-23.8%).

The Data Agency explained that production of memory semiconductors, such as flash memory and DRAM, decreased due to factors including base effects from the previous month and quarterly volume adjustments.

Lee Doo-won, a director for economic trend statistics at the Data Agency, explained, "With production capacity nearing its limit, some adjustments are being made according to delivery contract schedules," adding, "There is also a technical effect of volume reduction as semiconductor prices continue to rise."

He further predicted, "We believe the fundamentals of the semiconductor industry remain solid. If new semiconductor fabrication plants begin full-scale operations, we expect growth not only in nominal monthly figures but also in volume terms."

Pharmaceutical production also declined by 17.5%.

The Data Agency added that this was due to base effects from the previous month and production adjustments related to specific delivery schedules.

Sectors that saw an increase in production compared to the previous month included petroleum refining (9.8%) and automobiles (2.7%).

Petroleum refining saw its largest increase since September 2023 (13.6%).

However, considering a 14.7% decrease compared to a year ago, this is interpreted as a rebound driven by base effects following a sharp drop in April, which was impacted by the Middle East conflict.

Director Lee stated, "We cautiously predict that conditions will improve as the impact of the Middle East conflict stabilizes further."

The retail sales index, which measures consumer goods sales, rose by 0.1% from the previous month.

While sales of durable goods such as passenger cars fell by 3.4%, sales of non-durable goods like vehicle fuel (0.9%) and semi-durable goods like clothing (2.3%) increased.

Passenger car sales dropped by 10.9%, the largest decline since January 2024 (-14.6%).

This marks two consecutive months of decline.

The Data Agency explained that this was due to continued production disruptions following a fire at a parts supplier, as well as consumer demand waiting for new car releases in the second half of the year.

Conversely, vehicle fuel sales increased by 4.6%.

This is the largest increase since March 2024 (5.8%).

This is analyzed as a base effect following a significant drop in April caused by the impact of the maximum petroleum price system and vehicle rotation policies resulting from the Middle East conflict.

Service industry production, which reflects service consumption, rose by 1.3%.

While production in information and communications (-3.0%) declined, the finance and insurance sector (5.9%) rose due to an increase in stock trading value, and the professional, scientific, and technical sector (9.3%) increased due to higher research and development spending in semiconductors.

Wholesale and retail trade (-0.5%) recorded a decline for the third consecutive month.

Transportation and storage also fell by 1.8%, marking two months of consecutive decline.

This was influenced by a drop in air transport (-13.4%) for the second straight month, as long-haul international travel decreased due to rising global oil prices.

Facility investment decreased by 0.1% from the previous month.

While investment in transportation equipment (0.2%) increased, investment in machinery, such as precision instruments (-0.2%), declined.

Construction output (constant prices), which indicates domestic construction performance, rose by 3.8%.

Construction performance increased in both building (5.1%) and civil engineering (0.2%).

Construction orders (current prices) increased by 55.3% compared to the same month last year, marking seven consecutive months of growth.

This is attributed to large-scale projects, including semiconductor plants in Yongin and Cheongju.

Director Lee said, "If construction orders lead to future construction output, there is room for improvement," but added, "It is cautious to say that we are in a recovery phase for construction output."

The cyclical component of the coincident composite index, which reflects the current economic situation, fell by 0.3 points (p) from the previous month.

This marks the first decline in four months.

The cyclical component of the leading composite index, which forecasts future economic conditions, rose by 0.7p.

The Ministry of Economy and Finance stated, "External uncertainties are gradually easing, such as the sharp drop in global oil prices following the signing of the U.S.-Iran peace memorandum of understanding (MOU), and we expect the improvement in major industrial activity indicators to spread gradually."

The ministry emphasized, "However, as the public continues to face difficulties due to high inflation, high exchange rates, high interest rates, and a slowdown in employment, the government will do its utmost to ease the burden on the public by stabilizing consumer prices, supporting employment for vulnerable groups including the youth, and assisting small and medium-sized enterprises and vulnerable borrowers affected by the high exchange rate."

Regarding the decline in semiconductor production in May, a ministry official predicted, "It can only be viewed as a short-term adjustment. Semiconductor exports from June 1 to 20 increased by 188.4%, showing an upward trend. Looking at this data, we expect a rebound to positive growth in June."
※ Please note: This article was translated by AI and may contain errors.