Korea Likely to Achieve Positive Growth for Three Consecutive Quarters... Corporate Sentiment and Domestic Demand Recovery Are Key

Economic Indexes 'Rise Together' Amid Positive Sentiment... Consumption Pauses
Economic Sentiment Already Back to Pre-COVID-19 Levels
Bloomberg Forecasts South Korea's 1Q Growth Rate at 0.8%
Key to Watch if Domestic Recovery in Consumption and Employment Stabilizes

#With the full-scale launch of Samsung Electronics' Galaxy S21 smartphone at the end of last January, Samsung Electronics recently reclaimed the title of 'No.1 in the global smartphone market.' Domestic sales also surpassed 1 million units in just two months. Automobile production in February surged 37.8% compared to the same period last year. This is thanks to the gradual recovery of consumer sentiment as the global economy slowly emerges from the impact of COVID-19. Many key companies are increasing production as they manufacture core products for non-face-to-face demand such as home appliances, smartphones, and automobiles in Korea.

Although the spread of COVID-19 continues, the economic recovery is unstoppable. This is due to the base effect from last year's economic shock and growing expectations for global economic recovery with vaccine rollouts. Industrial production in February increased at the largest rate in eight months, making it certain that the first quarter gross domestic product (GDP) will record positive growth.

Economic Indices 'Rise Together' Amid Favorable Winds... Consumption Pauses

According to the industrial activity trends announced by Statistics Korea on this day, total industrial production rose 2.1% month-on-month, supported by increased exports at the beginning of the year. The coincident composite index, which reflects current economic conditions, and the leading composite index, used for short-term forecasts, also rose together by 0.3 percentage points and 0.2 percentage points, respectively. Eo Un-seon, head of the Economic Trend Statistics Division at Statistics Korea, analyzed, "Overall production showed considerable improvement, centered on manufacturing production," and "The economic recovery trend appeared stronger than the previous month."

Consumption and investment slowed. Last month's retail sales index fell 0.8% month-on-month, marking a decline for the first time in three months since November last year. The easing of social distancing measures due to COVID-19 led to a decrease in demand for food and beverages at home (-3.7%), which is believed to have impacted the decline in consumption indicators. The facility investment index stood at 121.7, down 2.5% from the previous month. This was influenced by an 11.4% month-on-month decrease in imports of semiconductor manufacturing equipment, causing the machinery investment index to fall 6.2% month-on-month.

Although consumption slowed, experts believe that once the spread of COVID-19 subsides and vaccinations accelerate, revenge spending could increase at any time. From the 26th of last month to the 28th of this month, Lotte Department Store's sales surged 88% compared to the same period last year, while sales at Hyundai Department Store and Shinsegae increased by 86.1% and 79.8%, respectively, during the same period.

Economic Sentiment Already Back to Pre-COVID-19 Levels

The sentiment of economic agents has already returned to pre-COVID-19 levels. The business sentiment experienced by companies rose uniformly regardless of manufacturing or non-manufacturing sectors and company size. The Business Survey Index (BSI) for manufacturing and non-manufacturing industries, announced by the Bank of Korea on this day, also rose across the board. Kim Dae-jin, head of the Corporate Statistics Team at the Bank of Korea's Economic Statistics Bureau, explained, "The manufacturing BSI rose by 17 points in the primary metals sector due to rising steel product prices, and the chemical substances and products sector increased by 12 points due to rising oil prices."

The BSI outlook for April business conditions rose 6 points to 84 for all industries. The Economic Sentiment Index (ESI), which reflects the Consumer Sentiment Index (CSI) in addition to the BSI, rose 4.7 points in one month to 101.3, the highest level since May 2018 (101.9).

Bloomberg Forecasts Korea's 1Q Growth at 0.8%... 2Q Consumption Recovery is Key

With exports showing stronger-than-expected performance, positive growth for the first quarter is assured for the third consecutive quarter. If the forecast holds, growth will have turned positive compared to the first quarter of last year, indicating a recovery from the COVID-19 shock.

The key question is whether the Korean economy can firmly settle into a full-fledged recovery. The semiconductor supply shortage could also act as a variable affecting production recovery. Statistics Korea remains cautious about whether the economy has hit bottom. A Statistics Korea official said, "It is cautious to explicitly state whether the bottom has been reached."

On this day, Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, presided over an emergency economic central countermeasure headquarters meeting at the Government Seoul Office and stated, "The second quarter is a decisive period (tipping point) to firmly establish our economy's full-fledged recovery," and added, "We will do our utmost to resolve the livelihood difficulties of self-employed people, small business owners, and vulnerable employment groups and to solidify the economic improvement trend."

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