"Challenging Q4 for Korean Economy"…Will Investment and Consumption Decline Due to Diesel Exhaust Fluid Shortage?

3rd Quarter Construction and Facility Investment Negative... Bleak Outlook for 4th Quarter
Concerns Over Consumption Contraction Amid Logistics Crisis

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] Amid the ongoing shortage of urea solution caused by China, concerns are rising that this issue could hinder the economic recovery expected with the transition to "With Corona" (gradual return to normal life). If the shortage continues until the end of the year, it may affect gross domestic product (GDP), facility investment, and private consumption, potentially slowing growth.

According to the Bank of Korea on the 10th, the preliminary real GDP growth rate for the third quarter (July to September) was recorded at 0.3%. The Bank of Korea and the Ministry of Economy and Finance expect private consumption to increase significantly in the fourth quarter due to the With Corona effect, but uncertainties have grown due to the urea solution shortage and inflation.

A Bank of Korea official stated, "Both construction investment and facility investment showed negative growth in the third quarter," adding, "We are closely monitoring the urea solution shortage as it could impact construction investment and other areas." In fact, construction investment recorded -3.0% in the third quarter, following 1.3% in the first quarter and -2.3% in the second quarter. According to the Korea International Trade Association, the import price of industrial urea rose from $267 per ton in October last year to $483 per ton in September this year. If equipment cannot operate due to the urea solution issue, investment and consumption could immediately decline.

According to a survey conducted by the National Construction Workers' Union from the 7th to 8th targeting 253 union members, 32.4% of respondents said they had experienced equipment downtime due to the urea solution problem. As some construction sites and other fields fall under the influence of the urea solution shortage, production and investment-related indicators may decline.

In particular, if the urea solution shortage triggers a logistics crisis, private consumption could also be hit. Private consumption increased by 3.6% in the second quarter but decreased by 0.3% in the third quarter, turning negative. This is the lowest figure in nine months since the fourth quarter of last year (-1.3%).

Professor Kim Taegi of Dankook University's Department of Economics said, "If the urea solution shortage prolongs, it could affect facility investment, private consumption, and production," adding, "If it leads to a logistics crisis, prices could skyrocket." He further noted, "If goods are not received on time, it could indirectly suppress consumption."

Meanwhile, the government is making all-out efforts to secure urea solution. Currently, discussions are underway with countries such as Vietnam, Australia, and Qatar regarding urea imports, and plans to supply reserve urea solution held by the military to the private sector are also being considered.

On the 9th, Hong Namki, Deputy Prime Minister and Minister of Economy and Finance, stated, "Negotiations with several countries to secure urea solution are in the final stages," adding, "The shortage is expected to be resolved in the short term."

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