KDI "Economic Slump Continues Due to COVID-19 Resurgence... Investment Also Contracts"

Publication of KDI Economic Trends October Issue

[Sejong=Asia Economy Reporter Kim Hyunjung] The Korea Development Institute (KDI) diagnosed that the South Korean economy continues to experience domestic demand-driven sluggishness due to the resurgence of COVID-19.

In the 'KDI Economic Trends October Issue' published on the 12th, KDI stated, "Due to restrictions on economic activities caused by the resurgence of COVID-19 and a longer rainy season than usual, the decline in domestic demand has expanded, mainly in the service and construction sectors." Earlier in August, KDI mentioned "positive signs of recovery" for the first time since the spread of COVID-19 in February this year in its economic trends report, but just a month later, it forecasted that "the economy is likely to contract again."

KDI evaluated, "While retail sales continued a low growth trend, investment temporarily contracted," and "due to domestic demand sluggishness, the number of employed persons continued to decline sharply, mainly in the service sector." It added, "Durable goods consumption maintained a high growth rate, which is judged to partially mitigate the domestic demand sluggishness centered on the service sector."

Industrial production across all sectors in August decreased by 3.4% compared to the same month last year due to the impact of the COVID-19 resurgence, fewer working days, and the prolonged rainy season. This decline was larger than the previous month's (-1.5%).

However, KDI observed that the manufacturing sector's sluggishness might ease somewhat as domestic sales of domestically produced cars surged significantly in September and external demand showed gradual recovery. Nevertheless, it predicted that if the spread of COVID-19 expands again after Chuseok, the service sector's economic downturn could deepen.

Consumption showed signs of contraction, centered on the service sector. Retail sales (August) showed a low growth rate of 0.3%, similar to the previous month (0.5%), and service sector production declined by 3.7%, worse than the previous month's (-1.2%). The consumer sentiment index in September reflected the resurgence of COVID-19, dropping 8.8 points from the previous month to 79.4.

Facility investment showed a growth rate of -1.8%, worsening from the previous month's (8.1%) due to a sharp decline in transportation equipment. However, considering the high growth rate of capital goods imports, it was judged that the improvement trend is being maintained. Capital goods imports in September recorded a 22.6% increase, higher than the previous month's (12.5%), and KDI expected that facility investment might maintain a moderate upward trend, centered on semiconductors.

Construction investment showed a growth rate of -9.4%, lower than the previous month's (-1.2%), as both the building and civil engineering sectors decreased by 10.4% and 6.3%, respectively, due to the rainy season and other factors. Housing starts decreased by 25.8% due to adjustments following the previous month's (83.6%) increase. In July, housing starts and sales had surged significantly following the implementation of the price ceiling system for pre-sale housing.

Exports were seen to maintain a slight decline as external demand gradually recovered. Exports in September increased by 7.7%, but the average daily export value, considering working days, decreased by 4.0%, the same as the previous month. KDI explained, "Despite the ongoing global spread of COVID-19, the global manufacturing sentiment index exceeded the baseline, and the sluggishness in global trade volume has gradually eased," adding, "While the average daily exports in September recorded a slight decline similar to the previous month, the October manufacturing business survey (BIS) outlook shows a moderate upward trend, mainly among export companies."

The employment market also continued to see a decline in the number of employed persons, centered on the service sector. The total number of employed persons in August decreased by 274,000 compared to the same month last year, showing similar sluggishness to the previous month (a decrease of 277,000). The service sector (-230,000) and manufacturing sector (-50,000) slightly reduced their decline compared to the previous month, but the agriculture, forestry, and fisheries sector turned to a decrease with 3,000 fewer employed persons due to the impact of the rainy season and other factors.

The financial market saw exchange rates and interest rates fall as major countries are expected to continue accommodative monetary policies, while household loans expanded significantly. In August, various loans recorded the highest increase (11.7%) since the COVID-19 outbreak, as both mortgage and other loans expanded.

This content was produced with the assistance of AI translation services.