South Korea's industrial output declined 0.3 percent in May compared to the previous month, extending on-month losses for a second consecutive month, according to data released on Tuesday by the Ministry of Data and Statistics. The contraction was driven primarily by a pullback in semiconductor production, even as retail sales edged slightly higher over the same period.

Chip Sector Leads the Decline

Output in the mining and manufacturing sector — a cornerstone of the South Korean economy — fell 3 percent month-on-month. The semiconductor industry bore the brunt of the decline, with production falling 10 percent, attributed to a base effect and deliberate volume adjustments in memory chip shipments, including dynamic random-access memory (DRAM).

Lee Doo-won, a senior official at the data ministry, told reporters: 'The fundamentals of the chip sector remain strong. With chipmakers' production capacity reaching its limits, there were some adjustments in line with shipment schedules.'

Lee further noted: 'If new chip fabs launch operations in a full-fledged manner, we believe there will be an increase not only in terms of value but also in volume.'

Pharma Output Slumps, Auto Sector Gains

Output of pharmaceutical products fell a steep 17.5 percent during the month, compounding the drag from semiconductors. In contrast, vehicle production bucked the trend, rising 2.7 percent over the period, offering a partial offset within the manufacturing segment.

External Pressures and Supply Chain Disruptions

The Ministry of Finance and Economy attributed the broader industrial contraction partly to disruptions in the supply of raw materials stemming from the Middle East war, alongside the chip production adjustment. This comes amid a period when semiconductor output had recently surged sharply, making the current pullback partly a corrective normalisation rather than a structural deterioration, according to officials.

Services, Retail, and Investment

Not all indicators pointed downward. Output in the service sector rose 1.3 percent on-month in May, led by stronger performance in finance and science industries. Retail sales, a key gauge of private consumption, edged up 0.1 percent, supported by gains in automobile fuel and cosmetics.

Within retail, sales of durable goods such as automobiles fell 3.4 percent, while non-durable goods including fuel rose 0.9 percent and semi-durable goods such as clothing climbed 2.3 percent. Facility investment dipped 0.1 percent, with the machinery industry — including precision equipment — falling 0.2 percent, partially offset by a 0.2 percent gain in the transportation segment.

With new semiconductor fabrication plants expected to ramp up operations, officials remain cautiously optimistic that both output volumes and values will recover in the months ahead.