Last month, production, consumption, and investment in the entire industry all recorded positive growth. The 'triple increase,' where production, consumption, and investment all increased compared to the previous month, has not been seen since December of last year, occurring now only for the second time in two months. At first glance, these indicators may suggest expectations for economic recovery, but the underlying circumstances are different. The fluctuation is a 'ping-pong' effect caused by base effects from the 'triple decrease' recorded in the previous month of January and November of last year.
According to the industrial activity trends for February 2025 released on the 31st by the Statistics Korea, production in the entire industry increased by 0.6% compared to the previous month, retail sales increased by 1.5%, facility investment increased by 18.7%, and construction output increased by 1.5%. Both facility investment and construction output fall under the category of investment. In January, production decreased by 2.7%, consumption decreased by 0.6%, facility investment decreased by 14.2%, and construction output decreased by 4.3%, indicating poor performance across all related indicators; however, there has been a reversal within a month.
The government's view on the triple increase after two months is complex. Jo Seong-jung, Director of Economic Analysis at the Ministry of Economy and Finance, noted, "It's not common for triple increases to occur frequently, yet there has been a repeated pattern of triple fluctuations lately. In a situation with significant monthly volatility, it's difficult to assess that a triple decrease is bad while a triple increase is good. We should view this with a long-term perspective."
Looking closely at the statistics, the production indicators show a downward trend over the past four months, characterized by the 'ping-pong' effect. The trends in the manufacturing production index (compared to the previous month) clearly illustrate this pattern. The three-month moving average of the manufacturing production index shows that the decline has been widening, while increases have been narrowing since November of last year. In response, Jo stated, "The recovery trend is not strong," adding, "We will remain vigilant."
The consumption indicators are in a similar situation. The seasonally adjusted retail sales index for February increased by 1.5% compared to the previous month, but compared to the same month last year, it recorded a decrease of 2.3%. The year-on-year change rate for the retail sales index has shown a continuous decline for 14 months since December 2023, excluding a flat result recorded in January.
Construction investment, one of the two key pillars of investment, also increased by 1.5% compared to the previous month, but compared to the same month last year, it has dramatically decreased by 21%. In particular, the construction output in the building sector recorded 7.2 trillion won, the lowest level since April 2016. Moreover, the 'construction order' indicating future construction activity has also shown a decrease of 6.9% compared to the same month last year.
The government identified the base effect of decreased working days due to the previous month's Lunar New Year holiday as the background for the industrial activity indicators recording a 'triple increase.' Additionally, it assessed that the increase in automobile sales, influenced by early payment of electric vehicle subsidies, contributed to the improvement in consumption indicators. The release of new smartphones, including the Galaxy S25, also aided in consumer recovery.
Lee Doo-won, Director of Economic Trend Statistics at Statistics Korea, said, "The sustained demand for high-spec semiconductors and the increase in related equipment production have been effective," and he identified early execution of electric vehicle subsidies and the launch of new smartphone models as contributing factors.
However, amid the continued trend of weak consumption, there are significant concerns that the trade war initiated by the United States will close the growth window for the South Korean economy, including exports. The Ministry of Economy and Finance also diagnosed the current economic situation as having significant downward risks due to the "depression in the construction industry and tariffs imposed by the United States."
Within the government, there are expectations that the '10 trillion won supplementary budget' proposed by Vice Prime Minister and Minister of Economy and Finance Choi Sang-mok the day before will help in the recovery of the economy. However, some experts have voiced the need to increase the scale of the supplementary budget, considering the significant concerns regarding downward economic prospects.
Woo Seok-jin, a professor of economics at Myongji University, stated, "Initially, the government intended to respond with 'swift execution' rather than a supplementary budget, but it seems that it hasn't achieved effectiveness in terms of the economy. Considering responses to forest fires and similar matters, I believe that setting the supplementary budget amount at 10 trillion won is insufficient. I think there's a need to expand the supplementary budget."