The Bank of Korea: "Regional Economy Recovery Trend in Q2... Consumption Also Expected to Recover"

Bank of Korea 'Regional Economic Report'

[Asia Economy Reporter Kim Eunbyeol] During the second quarter of this year, the regional economy continued its recovery trend, supported by strong exports due to the global demand rebound. Manufacturing production and facility investment increased compared to the previous quarter, and consumption also improved thanks to the easing of social distancing measures and expanded vaccination.

According to the "Regional Economic Report (June 2021)" released by the Bank of Korea on the 29th, manufacturing production increased in the Seoul Capital Area, Southeast region, Chungcheong region, Honam region, and Daegu-Gyeongbuk region compared to the previous quarter, while the Gangwon region and Jeju region remained flat.

In particular, in the Seoul Capital Area, machinery and equipment continued to perform well, with semiconductors increasing due to the expansion of server demand at global data centers, and pharmaceuticals rising due to increased production of COVID-19 treatments. In the Southeast region, petroleum refining increased due to expanded refining margins from rising oil prices. In the Chungcheong region, displays remained flat, while secondary batteries increased, centered on small batteries for electronic devices. In the Honam region, petrochemicals increased due to favorable product spreads and new production facility startups, and shipbuilding rose due to expanded order volumes. In the Daegu-Gyeongbuk region, mobile phones decreased due to production disruptions caused by semiconductor supply shortages, whereas steel increased steadily due to growing demand from the automotive and housing sectors.

Looking ahead, manufacturing production is expected to increase in most regions including the Seoul Capital Area compared to the second quarter, while the Jeju region is expected to remain flat.

During the second quarter, service industry production increased in all regions including Gangwon. In Gangwon, travel demand expanded mainly around outdoor leisure facilities such as golf courses and major entertainment facilities, leading to growth centered on tourism services. In the Seoul Capital Area, retail and wholesale slightly increased as consumer sentiment recovered, and transportation services slightly increased due to growth in air and sea cargo amid strong exports and imports. In the Daegu-Gyeongbuk region, retail and wholesale slightly increased centered on luxury goods and home appliances as consumer sentiment recovered, and transportation services slightly increased mainly in Gyeongju due to the substitution effect for overseas travel. In the Jeju region, the number of domestic tourists approached pre-COVID-19 levels, expanding the recovery of tourism services such as car rentals, and duty-free shops showed improvement due to market development for Chinese proxy buyers.

The Bank of Korea stated, "Future service industry production will be influenced by the progression of COVID-19, vaccination distribution status, and the scale and effectiveness of government support policies," but also forecasted that "as household consumption sentiment and income conditions improve, the Chungcheong region will increase compared to the second quarter, and most other regions will see slight increases."

During the second quarter, consumption increased in the Seoul Capital Area compared to the previous quarter, and most regions including the Southeast region saw slight increases. The Jeju region remained flat. Facility investment increased in the Chungcheong region compared to the previous quarter and slightly increased in the Gangwon and Jeju regions. Other regions including the Seoul Capital Area remained at the previous quarter’s level.

Construction investment slightly increased in most regions compared to the previous quarter, but rising construction material prices and supply instability were identified as limiting factors. The Seoul Capital Area remained flat. The year-on-year growth rate of exports in the second quarter was higher than in the first quarter across all regions.

The average monthly number of employed persons in April and May increased by 635,000 compared to the same period last year, reversing the decline of 380,000 in the first quarter. The employment increase was observed across all regions. Consumer prices rose more sharply in most regions during April and May, while housing sale price increases slowed compared to the first quarter.

The Bank of Korea stated, "Going forward, regional economies are expected to continue a solid recovery in manufacturing production supported by strong exports in most regions, and consumption is also expected to maintain its recovery trend due to improved household consumption sentiment and income conditions."

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