Growth rate, number of startups, all in decline
With growth of production in the service industries falling and business sentiments cooling, some economists fear an economic downturn in South Korea. Additionally, a sharp decline in the number of manufacturing start-ups seems to further signal stagnation of economic activity. According to a July 31 report by the National Statistical Office on service industry trends in June, production in that sector grew only 4.5 percent in June compared with the same period a month ago. The growth rate was the lowest since June last year, when it expanded only 2.8 percent. Since the second half of last year, the service industry has grown at a rate between 5 and 6 percent. By industries, the growth of finance and insurance industries slowed to 6.4 percent in June from 9.8 percent in May, along with the medicine and logistics industries. The growth rate of the wholesale and retail sectors, key indicators of consumption, decelerated to 3.7 percent in June from a 4.1 percent rate in May. The growth rate in the accommodations and restaurants sector, which is the most accurate measure of true economic trends, slowed to 1.7 percent growth in June from 2.3 percent in May.In addition, according to a survey on the June business sentiment index by the Bank of Korea, the index of manufacturing industry fell by six points to 77, touching its lowest level in a year. A reading below 100 means there were more companies expecting the economy to deteriorate than companies expecting acceleration. Business confidence also fell to 79 points in August, down 5 points from the month before. Moreover, sentiment in non-manufacturing companies stood at 76, down 6 points from last month. Kang Byung-chun, an official at the central bank's statistical team, said that "the indices fell due to Israel's air strikes against Lebanon, North Korea's missile tests, worker strikes, and damage from heavy rains." "Though July is a seasonally weak month, indices tended toward their lowest levels." Daewoo Securities economist Koh Yoo-sun said, "There were signs of economic slowdown, as was previously expected. However, the level of slowdown may be moderate overall, as no bubble effect was seen during the prior economic upturn." According to data by the Administration of Small and Medium-Sized Companies, the number of manufacturing start-ups during the first half of this year was 4,070, down 26.1 percent from a year ago. The number of newly started manufacturing companies fell to 9,435 in 2005, from 11,078 in 2004 and 12,445 in 2003. Cho Deok-hee, a researcher at the Korea Industry Research Institute, said, "The declining trend was due to a fall in potential profits from starting new businesses, a lack of workforce, land, and financing."
