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.
But many say the trend won't last very long.
"The moderate pace of economic growth comes from the sluggish domestic demand, which is not keeping up with the pace of strong exports. On that trend, I believe the ferry disaster added negative pressure temporarily."
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In fact, the nation's industrial output, which is less affected by the ferry disaster, grew zero.1 percent in April from a month earlier, marking two straight months of expansion.
Facilities investment also rose more than 2-and-a-half percent.
Still, business sentiment among Korean manufacturers worsened this month, going down for the first time this year to 79 from 82 in April.
A reading below one hundred means pessimists outnumber optimists.
The Bank of Korea, which releases the monthly survey says the slowing Chinese economy and strengthening won soured business sentiment.
"And with the sentiment remaining sluggish, experts point out that data for May and June will decide whether the nation's overall economic trend has turned downward.
Hwang Ji-hye, Arirang News."