Korean Economy News
KDI maintains dismal view of S. Korean economy for 3 months in a row

Kim Yeon-joo and Lee Eun-joo

South Korea’s state think tank Korea Development Institute (KDI) judged that the Korean economy has remained sluggish in its June report, citing a delayed recovery in exports on top of the softening domestic demand.

Despite the slight increase in production, “the Korean economy continues to stagnate,” KDI said in its monthly economic assessment report, citing a continued fall in exports and the slowing domestic demand.

This is the third month in a row that the state-run think tank assessed the country’s economy is in a slump. For the five straight months since November last year, the KDI assessed the Korean economy was “weakening,” before raising its negative tone to “slumping” for the first time in April. The think tank maintained the same stance in May and June.

A slight gain in industrial output was not enough at all to offset the slowing local demand and subdued investment and exports, failing to reverse the course, it said.

In April, the country’s overall industry output increased 0.7 percent from the previous month, swinging from a 0.5 percent drop in the previous month thanks to the slowed fall in mining and manufacturing production, in particular in the semiconductor and automobile sectors. The gain in service sector output, an indicator for domestic demand, also widened, especially in social welfare and welfare service activities.

The KDI, however, noted that these trends are “not deemed as signals of significant upward trajectory in production given the increase in workdays.”

The KDI also noted the country’s private consumption is “slowing at a moderate pace as April’s retail sales growth scaled down.”

Korea’s exports fell 9.4 percent in May from a year earlier, falling further from a 2 percent on-year decline in April. The fall in exports in May accelerated due to the further drop in demand for semiconductors and petroleum products worldwide amid the slowing global economic growth.

Local stocks also remained lackluster and the Korean won continued to weaken against the U.S dollar in May amid concerns over a slowdown in economy and increased external uncertainties such as the intensifying trade war between the United States and China, the KDI noted.

Before the KDI’s release of the gloomy report on Korean economy on Monday, the Korean government for the first time admitted external uncertainties and downside risks to the export-reliance economy could drag on longer and do greater harm than expected.

“External uncertainty has grown greater than we had anticipated at the beginning of the year,” Yoon Jong-won, senior presidential secretary for economic affairs, told reporters on Friday. “We now have to consider the possibility of prolongation in downside risks.”

The president and the government so far remained positive on the economy despite the 0.4 percent on-quarter contraction in the first-quarter economy, citing fundamentals, and predicted recovery from the second half. The 0.4 percent contraction was the Korean economy’s worst performance in more than a decade.

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