Some economists say rising oil prices and local inflation, along with households’ increased interest burdens, are eating into domestic consumption power, but that the Bank of Korea is still likely raise its policy rate by 0.25% to 3.25% in May.
In March, industrial production rose a seasonally 1.4% from a month earlier a seasonally adjusted rise, as automobile output grew 2.5%, t that of semiconductors and chip components slid 1.8%, data released by Statistics Korea showed.
The headline result was short of the median 3.2% on-month gain forecast by 10 economists polled by Dow Jones Newswires, but was a reverse of February‘s revised 2.5% decline.
“Exports are still doing very well, but the wealth they generate has yet to be distributed to households. Domestic consumption is not as strong as expected,” HI Investment & Securities economist Park Sang-hyun said to Bloomberg.
He noted that the Korean economy is especially sensitive to oil prices, which have been above $100 a barrel for the past three months. “In those three months, Korea may have run out of its oil inventories, which had been stored when prices were lower, and started shipping in oil at more expensive prices.”
The weaker-than-expected production data, however, is unlikely to change the broader picture of the BOK’s rate decision, economists say.
Tong Yang Securities said exports are likely to continue supporting the overall economy, and that inflation is still above the BOK‘s target band for the year of 2% to 4%.
“The BOK may hike in May and wait for a few months to assess how the economy performs during the summer,” which is traditionally a slow season for the economy, as production slackens while employees take their summer vacations.
(아주경제 앤드류 이 기자)
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