NABO Industry Trends and Issues (No. 7)
I. Industry, Trade, Industrial Loans and Energy Trends
(Manufacturing and Exporting) The manufacture of semi-conductors (3.0%), petroleum (1.2%) and other goods increased, whereas large-scale manufacturing products such as automobiles (-19.7%), steel (-13.8%) and ship-building (-32.2%) decreased in February, compared to the previous month. As for total exports in March, due to the global manufacturing boom, the exports of goods such as semi-conductors (44.2%), general machinery (6.1%) and steel (6.2%) increased backed by the flourishing manufacturing and IT industries worldwide as well as the rise of unit prices, on a YoY basis.
(Industrial Loans) In 4Q 2017, due to the increased volume of lending in large sectors such as the services industry, industrial loans totaled 1,052 trillion Korean won, 6.7% higher than the same period in the previous year. Loans for the manufacturing sector increased by 4.1%, 8.6% for the services sector, 4.6% for the construction industry and 3.4% for others.
(Energy) Final energy consumption in 2017 increased by 3.1% from the previous year, at the same level as the real economic growth rate. This was most likely due to the energy consumption in the industrial sector, which increased by 3.8% from the previous year, while the volume of power generation in 2017 increased by 2.4% compared to the previous year.
Ⅱ. International Comparison of the Efficiency of Korea’s R&D Fiscal Expenditure
Despite Korea expanding its proportion of R&D total expenditure (private + government) and R&D fiscal expenditure versus GDP, questions about investment outcomes are often raised. Therefore, an international comparison on the efficiency of the expenditures was conducted. From a DEA analysis of the R&D expenditure efficiency of 31 OECD countries, Korea ranked 28th in terms of GDP-to-fiscal expenditure ratio and 14th in terms of per-capita fiscal expenditure volume, implying that efficiency needs to be enhanced. In order for the government to expand R&D fiscal expenditure in the future, the link between performance evaluation and budget proposals needs to be strengthened. In addition, concrete policy measures need to be sought to maximize fiscal performance, thereby enhancing expenditure efficiency.
Ⅲ. The Impact of Women’s Working Hours on Birth Rates
One of the reasons suggested as to why a low birth-rate trend persists in Korea is because the burden of birth and child-rearing is too high due to the difficulty of balancing work and life.
Since long working hours are often a factor undermining the work-and-life balance, we analyzed the impact of working hours on birth rates. We showed that if a married woman works one more hour, her chance of becoming pregnant within one year drops 0.34%p. The impact is higher in case of a first pregnancy, in which case the chance of pregnancy is reduced by 1%p, and if the woman’s position is assistant manager or lower, her chance of becoming pregnant falls by 0.43%p. Against this backdrop, it can be assumed that a reduction in the number of hours worked could possibly lead to the recovery of Korea’s birth rate.
Ⅳ. Examination of the Impact of the Reversal of Reserve Interest Rates between Korea and the US on the Korean Financial Market
As the FRB raised the US reserve interest rate (March 21st, 2018), the reserve interest rates of Korea and the US were reversed with a gap of 0.25%p. The impact of the reversal of the reserve interest rate in Korea and the US on the Korean financial market is not yet significant. However, an analysis of the two previous cases of reserve interest rate reversal between Korea and the US in 1999 and 2005 showed an increase in capital flight in terms of foreign investment as the reversal gap widened and led to a fall in stock prices. Considering the economic fundamentals in Korea and the US, the reversal gap of the reserve interest rate of the two countries is likely to widen. Therefore, risk management measures for the financial market need to be prepared such as by examining various market risks and preparing contingency plans.