Middle East War Impact Becomes Clear... April Sees Triple Decline in Production, Consumption, and Investment (Comprehensive)

Ministry of Data and Statistics Releases April Industrial Activity Trends
Petroleum Refining Sees Largest Drop in 38 Years Due to Strait of Hormuz Closure
Government: "Temporary Adjustment... Recovery Expected in May"

In April, as the aftermath of the Middle East war intensified, Korea’s economy saw a triple decline in production, consumption, and investment. This simultaneous drop in all three indicators occurred for the first time in eight months since August of the previous year. Despite strong performance in semiconductors, disruptions in the supply of gasoline and other products due to the blockade of the Strait of Hormuz led to the sharpest drop in petroleum refining output in 38 years. However, the government described this as a temporary adjustment caused by the Middle East conflict and projected that the indicators would improve in May.

Yonhap News Agency

According to the “April Industrial Activity Trends” released by the Ministry of Data and Statistics on the 29th, the seasonally adjusted all-industry production index for last month stood at 117.8 (2020=100), down 0.6% from the previous month. All-industry production increased by 1.2% in December last year, then fell by 0.8% in January this year. It continued to rise for two consecutive months in February (2.1%) and March (0.4%), but then declined again in April.

Mining and manufacturing production decreased by 0.7% compared to the previous month. While semiconductors rose by 3.1%, continuing their boom, the sector was heavily affected by a sharp 10.0% drop in automobile production. Lee Dowon, Economic Trends and Statistics Deliberation Officer at the Ministry of Data and Statistics, explained, “In March, a fire at some parts suppliers led to supply disruptions, and decreased production in May was due to pent-up demand for new vehicles.” Petroleum refining, which was hit directly by the fallout from the Middle East war, plunged by 19.4%, marking the largest drop in 37 years and 11 months since May 1988 (-22.1%). The blockade of the Strait of Hormuz caused supply disruptions for diesel and gasoline. Maintenance work by major companies also contributed to the decline.

All domestic demand-related indicators also worsened. Service industry output, which reflects service consumption, fell by 1.0%, the largest decline in four years and two months since February 2022 (-1.7%). While information and communications production increased by 4.3%, output in finance and insurance (-7.7%) and wholesale and retail (-1.5%) decreased. In the wholesale and retail sector, declines were seen in retail sales of home appliances, information and communication equipment, and other specialized wholesale sectors. Retail sales were down 3.6%, the biggest drop in 26 months since March 2024 (-3.7%). While sales of semi-durables such as shoes and bags remained flat, sales of durables such as telecommunications devices and computers fell by 11.1%. Lee explained that the base effect from new mobile phone launches was a major reason for the decline. Sales of non-durable goods, including vehicle fuel, also fell by 1.1%, largely due to a sharp drop in vehicle fuel sales as vehicle rationing continued in the wake of the Middle East conflict.

Facility investment fell by 3.6%. Although investment in machinery such as semiconductor manufacturing equipment increased by 0.5%, investment in transportation equipment shrank significantly by 11.5% due to the base effect from aircraft introductions at the beginning of the year. Construction output declined by 1.4% compared to the previous month, with both building construction (-1.5%) and civil engineering (-1.1%) underperforming. However, both coincident and leading indicators maintained an upward trend. The coincident index of cyclical variation, which reflects the current economic situation, rose by 0.2 points from the previous month, while the leading index of cyclical variation, which predicts future economic trends, increased by 0.6 points.

The government assessed April’s “triple decline” as a temporary adjustment. The outlook is for a resumption of improvement in May. Deputy Prime Minister and Minister of Economy and Finance Koo Yooncheol stated at the Emergency Economic Response Headquarters and Economic Ministers’ Meeting that the triple decline was a temporary adjustment caused by the base effect from previous sharp increases. He added, “In May, both consumer and business sentiment are rising sharply, and strong export trends continue, so the improvement trend is expected to resume.” Lee Dowon also said, “The base effect from increases in February and March, as well as the impact of the Middle East war, both played a role. However, compared to the same month last year, the upward trend is still continuing.”

This content was produced with the assistance of AI translation services.