KDI "Strengthening Quarantine Against Supply Chain Risks... Downward Pressure on Economy Increases"

"December Quarantine Measures Reinforced Again... Constraints on Consumption-Centered Domestic Demand Conditions"

[Image source=Yonhap News]

[Sejong=Asia Economy Reporter Moon Chaeseok] The government-funded research institute Korea Development Institute (KDI) has warned of an increased downside risk to South Korea's economy. This is due to the re-strengthening of COVID-19 quarantine measures and growing economic uncertainty.

On the 9th, KDI stated in its "January KDI Economic Trends" report, "Our economy had been maintaining a moderate recovery trend, but recently, with quarantine measures being reinforced again and the improvement in external demand weakening, downside risks to the economy are expanding."

KDI explained that both domestic and external risks remain present. Regarding domestic manufacturing production indicators, the overall industrial production growth rate recorded 5.3% in November last year, improving from 4.8% in October, showing signs of recovery before slowing again. KDI noted, "With social distancing measures strengthened again, the improvement in external conditions remains constrained."

They also viewed external economic conditions as challenging due to supply chain risks and other factors. The year-on-year average daily export growth rate declined from 28.1% in September last year to 15.9% in December. Accordingly, the manufacturing business survey index (BSI) forecast dropped from 92 in October to 88 in December. Regarding this, KDI said, "Globally, multiple risk factors persist, including the resurgence of COVID-19, supply chain disruptions, and concerns over accelerated monetary tightening in the United States."

Last month, the consumer price index rose by 3.7%, similar to November's 3.8%, but significantly higher than October's 3.2%. The price of personal services such as dining out increased from 3% to 3.4%, raising the overall service price inflation from 2.4% to 2.6%. Additionally, rising food material prices pushed up dining-out prices. Consequently, the core inflation index excluding food and energy rose to 2.2%, up from 1.9% in November last year.

However, with the reinforcement of quarantine measures last month, consumer sentiment contracted and credit card usage slowed. The consumer sentiment index recorded 103.9, down 3.7 points (p) from the previous month (107.6).

KDI noted that credit card sales were compared to 2019, before the COVID-19 pandemic, to avoid the base effect caused by weak consumption in the second half of 2020. As a result, last month's sales decreased by 0.5% compared to December 2019. This contrasted with the recovery trend seen in October (2.7%) and November (5.4%).

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