KDI "Weakness in Large-scale Services, Expansion of Global Supply Chain Uncertainty... South Korea Faces Increased Downside Risks"

"Consumption Promotion Policies and Vaccine Distribution... Potential Mitigation of Social Distancing Impact"

[Image source=Yonhap News]

[Sejong=Asia Economy Reporter Moon Chaeseok] The Korea Development Institute (KDI) diagnosed that the downside risks to the Korean economy are increasing due to the worsening of face-to-face service industry caused by the resurgence of COVID-19 and strengthened quarantine measures, as well as growing external uncertainties such as disruptions in the Global Value Chain (GVC).

On the 7th, KDI evaluated in the 'Economic Trends October Issue' that "Recently, our economy's recovery has slowed due to the sluggishness in the face-to-face service sector, and downside risks are increasing as global economic uncertainties expand."

KDI observed that production and employment in major face-to-face industries such as accommodation and food services are contracting, and in manufacturing, downside risks are expanding with production declines in some sectors like automobiles due to instability in intermediate goods supply and a drop in business sentiment indicators.

Industrial production in all sectors in August recorded a growth rate of 6.0%, higher than the previous month (4.5%). Manufacturing production maintained a favorable growth trend following July, centered on semiconductors (36.7%), primary metals (13.7%), and machinery equipment (11.2%).

Service sector production increased by 4.4% due to a base effect from last August’s -3.8% growth rate, but decreased by 0.6% compared to the previous month. Major face-to-face industries such as accommodation and food services (-5.0%), transportation and warehousing (-1.3%), and educational services (-1.7%) suffered significant impacts.

Exports recorded a 27.9% growth rate based on the average daily amount last month, considering operating days. This showed a high growth trend following 36.8% in June, 32.3% in July, and 29% in August.

The overall export growth rate last month was 16.7%, lower than the previous month (34.8%) due to the influence of holiday travel. Major items such as semiconductors (28.2%) and steel (41.8%), as well as key trading regions like China (17.3%), showed growth.

Consumption saw an increase only in semi-durable goods, while durable and non-durable goods contracted. The total retail sales growth rate in August was 3.8%, lower than July’s 7.9%. Service sector production was 4.4%, similar to July’s 4.0%, but face-to-face services such as accommodation and food services continued a sluggish trend at -5.2%, though improved from July’s -8.0%.

However, the consumer sentiment index last month rose by 1.3 points to 103.8 from 102.5 in October. Regarding this, KDI anticipated, "Since last month, the government's consumption stimulation policies have been fully implemented and vaccines have been widely distributed, the negative impact of social distancing is likely to be alleviated."

Source=KDI

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