The sunken Sewol-ho ferry disaster threatens to wreck Korea's fragile economic recovery.
Statistics Korea said Friday that output across all industries dropped half-a-percent in April from a month ago.
The agency said the drop is largely being seen in the service industry which includes the leisure and lodging sector, reflecting lackluster domestic demand brought on by the disaster.
Service sector production dropped one percent from the previous month, while retail sales were down more than one-and-a-half percent.
The nation's industrial output, which is less affected by the ferry disaster, managed to grow zero.1 percent last month, but still lower than a near one percent rise in March.
The agency said the gain in the production in the mining, manufacturing and gas industries was led by strong exports of automobiles and mobile phones.
And with business sentiment among Korean manufacturers dropping for the first time in May this year to 79 from 82 in April, experts say the outlook doesn't look so good either.
The Bank of Korea, which releases the monthly survey says the slowing Chinese economy and strengthening won soured business sentiment.
A reading below one hundred means pessimists outnumber optimists.
Hwang Ji-hye, Arirang News.