South Korea’s industrial production expanded last year, driven by a rebound in semiconductor exports. However, domestic demand indicators, including service output, retail sales, and construction, continued to weaken, further widening the gap between the country’s external and internal economic performance.

According to Statistics Korea’s report released on Monday, the overall industrial production index stood at 113.6 in 2024, based on the 2020 standard of 100, marking a 1.7 percent increase from the previous year. The growth was stronger than the 1.0 percent rise in 2023, largely due to a recovery in semiconductor exports.

In the fourth quarter, industrial production rose 0.4 percent, exceeding the Bank of Korea’s preliminary estimate for gross domestic product (GDP) growth of 0.1 percent but falling slightly short of the central bank’s 0.5 percent forecast.

Mining and manufacturing production increased 4.1 percent, led by semiconductors and pharmaceuticals, despite declines in electrical equipment and primary metals. While shipments of manufactured goods grew 4.0 percent in exports, domestic shipments fell 2.0 percent, reflecting weak internal demand.

Manufacturing output, which had contracted by 2.6 percent in 2023 due to the semiconductor downturn, rebounded with a 4.4 percent increase last year.

Service industry production, which reflects consumer activity, grew 1.4 percent in 2024, less than half the 3.2 percent increase recorded in 2023. This marks the weakest growth since 2020 (-2.0 percent), when the economy was hit by the Covid-19 pandemic. While sectors such as transportation, warehousing, finance, and insurance saw gains, retail and wholesale businesses suffered declines.

Retail sales, a key measure of domestic consumption, fell 2.2 percent, marking the largest drop since 2003 (-3.2 percent) when a nationwide credit card crisis hit consumers. Retail sales have now declined for three consecutive years—the longest losing streak since records began in 1995—with the decline widening each year.

By product category, sales of durable goods such as passenger cars dropped 3.1 percent, while non-durable goods like food and beverages fell 1.4 percent. Sales of semi-durable goods, including clothing, declined 3.7 percent.

Facility investment rose 4.1 percent, bolstered by increased spending on semiconductor manufacturing equipment (2.9 percent) and transportation equipment (7.8 percent). However, construction activity remained weak, with construction output declining 4.9 percent due to a 6.9 percent drop in building construction, marking the steepest decline since 2021 (-6.7 percent).

Construction orders, however, increased 7.2 percent as demand for housing projects drove an 11.8 percent gain in building-related contracts, offsetting a 1.9 percent decline in civil engineering projects.

In December alone, industrial production rose 2.3 percent from the previous month, marking a recovery after three consecutive months of declines from September to November.

Mining and manufacturing production increased 4.6 percent, supported by a 5.6 percent rise in semiconductor output and a 10.7 percent increase in automobile production. The service sector expanded 1.7 percent, driven by growth in finance and insurance (5.3 percent) and retail and wholesale (2.8 percent). However, the hospitality sector saw sharp declines, with lodging and restaurants falling 3.1 percent and the arts, sports, and recreation sector plunging 6.9 percent—the largest drop since February 2022 (-6.0 percent).

Retail sales edged down 0.6 percent in December, marking the fourth straight month of declines. While non-durable goods sales rose 1.0 percent, durable goods (-4.1 percent) and semi-durable goods (-0.6 percent) continued to decline.

Facility investment jumped 9.9 percent, buoyed by a 39.1 percent surge in transportation equipment purchases. Construction output, which had declined for seven consecutive months, rebounded 1.3 percent from November as building construction rose 5.9 percent.

The cyclical component of the coincident index, which tracks current economic conditions, remained unchanged from the previous month, continuing its trend of stagnation since March 2023. Meanwhile, the leading index, which predicts future economic activity, fell by 0.2 points.

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