May Industrial Production Down 0.3% From Previous Month... Two Consecutive Months of Decline Amid Ongoing Middle East Risks (Comprehensive)

Ministry of Data and Statistics Releases "May Industrial Activity Trends"

Production and Investment Remain Negative in May, Continuing April's Decline

As the aftershocks of the Middle East war risk continue, South Korea's industrial production has recorded a decline for two consecutive months. Facility investment also fell for the second month in a row, maintaining a sluggish trend. However, a slight rebound in consumption helped the economy avoid a 'triple decline.'

The construction site of Yongin Semiconductor Cluster General Industrial Complex in Yongin City, Gyeonggi Province. Photo by Yonhap News.

Manufacturing Hindered by Semiconductor 'Capacity Cap'... Service Sector Cushions the Decline

According to the "May 2026 Industrial Activity Trends" released by the Ministry of Data and Statistics on June 30, the seasonally adjusted index of all-industry production decreased by 0.3% from the previous month. After two consecutive months of increase in February and March, the index turned downward for two consecutive months, dropping by 0.4% in April and again in May.

A temporary adjustment in the core engine, semiconductors, dealt a significant blow. Mining and manufacturing production fell by 3.0% from the previous month, driven largely by a sharp 10.0% drop in semiconductor output. Lee Dowon, Director of Economic Trend Statistics at the Ministry of Data and Statistics, explained, "While the fundamentals of the semiconductor industry remain robust, the production capacity of domestic factories has reached its limit. As a result, temporary declines have occurred as production volumes are adjusted each month based on delivery schedules and shipping dates." Pharmaceutical production, which had shown growth for three consecutive months, also plummeted by 17.5%.

In contrast, the petroleum refining industry, which had plunged by 19.3% in April due to the blockade of the Strait of Hormuz and other factors, rebounded by 9.8% in May as regular maintenance tapered off. Automobile production also increased by 2.7% as supply chain disruptions eased. Director Lee stated, "The rebound in petroleum refining reflects a base effect from the sharp drop in the previous month, and compared to the same month last year, the industry is still in decline and has not returned to normal levels. Improvements are expected as oil prices stabilize and the regional conflict subsides." The average operating rate in manufacturing was 71.1%, down 2.2 percentage points from the previous month due to the impact of semiconductors.

Another pillar of production, the service sector, increased by 1.3%, led by finance and insurance (5.9%) as well as professional, scientific, and technical services (9.3%), supported by a strong stock market and increased investment in semiconductor research and development (R&D). This helped offset the decline in total industrial production. However, the surge in oil prices led to a sharp drop in long-distance travelers, causing the air transport industry to plunge by 13.4% and the entire transportation and warehousing sector to contract by 1.8%.

Consumption Stagnant, Facility Investment Down for Second Month

Retail sales, which reflect consumption trends, rose by only 0.1% from the previous month. Sales of durable goods fell by 3.4%, but consumption of nondurable goods such as vehicle fuel (up 0.9%) and semi-durable goods such as clothing (up 2.3%) picked up, thanks in part to an early heat wave. The number of inbound foreign tourists increased significantly, boosting sales of cosmetics at duty-free shops and specialty retailers. However, sales of passenger cars plummeted by 10.9% from the previous month, holding back overall consumption growth. This was due to a combination of factors: supply chain disruptions caused by fires at some parts suppliers, pent-up demand for new cars ahead of the launch of best-selling SUV models in the second half of the year, and the early exhaustion of subsidies for electric vehicles.

Facility investment edged down by 0.1% from the previous month, as investment in transportation equipment such as automobiles increased only marginally (0.2%), while investment in machinery, including precision measuring devices, contracted by 0.2%. Construction progress, as measured by real construction completed, rose by 3.8% from the previous month. While residential construction declined, non-residential large-scale projects, especially those centered around the clusters in Yongin and Pyeongtaek, drove a 5.1% increase in building construction.Construction orders (current value) also rose by 55.3% year-on-year, marking a seventh consecutive month of growth, buoyed by demand for railways, factories, and warehouses.

The coincident composite index, which reflects the current state of the economy, fell by 0.3 points from the previous month to 99.9, marking the first decline in four months. The leading composite index, which forecasts future economic conditions, rose by 0.7 points.

The Ministry of Finance and Economy stated, "External uncertainties are gradually easing following the signing of the end-of-war MOU between the United States and Iran, and we expect improvements in key industrial activity indicators going forward. However, as challenges to people's livelihoods persist due to high inflation, high exchange rates, high interest rates, and sluggish employment, we will make every effort to ease the burden on households."

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