Economic Headwinds for Manufacturing

As the new U.S. administration takes office and domestic political instability continues, the manufacturing sector braces for a challenging first quarter. A significant downturn in sales is expected, mirroring the sharp decline in retail sales witnessed at the end of last year, the steepest since the 2003 credit card crisis.

Survey Insights: A Gloomy Outlook

According to a survey by the Korea Institute for Industrial Economics and Trade (KIET), the Business Survey Index (BSI) for sales projections has dropped to 91, indicating a pessimistic outlook among manufacturers. Key sectors like semiconductors and steel are particularly affected, with BSIs of 91 and 75, respectively.

External and Domestic Pressures

The manufacturing sector's woes are compounded by high-interest rates, exchange rate volatility, and a challenging domestic political landscape. These factors are expected to further dampen domestic demand, with a majority of manufacturers citing sluggish demand and rising inventories as major concerns.

Retail Sales and Service Consumption Decline

Retail sales from January to November last year fell by 2.1 percent, marking the largest drop in two decades. This downturn is reflected across durable, semi-durable, and non-durable goods, a trend not seen since 1995. Service consumption also slowed, with only a 1.5 percent increase in service production, signaling a broader economic slowdown.