"Korean Economic Slowdown Becomes Visible"…KDI Raises Warning Level

KDI "Export Slump Deepens... Economic Slowdown Becomes Visible"
Warning Level Raised After One Month... Concerns Over Downward Pressure on Economy

[Asia Economy Sejong=Reporter Lee Jun-hyung] The Korea Development Institute (KDI), a government-funded research institute, has diagnosed that the domestic economic slowdown has become visible. The main cause was identified as export sluggishness centered on semiconductors. KDI predicted that downward pressure on the economy could increase due to the impact of high interest rates.

In the 'January Economic Trends' report released on the 8th, KDI stated, "Recently, our economy is showing a visible slowdown mainly in manufacturing due to worsening export sluggishness." Previously, KDI analyzed in last month's economic trends that the possibility of an economic slowdown was increasing. This diagnosis came just one month after suggesting the possibility of a domestic economic slowdown last month, confirming that the slowdown has become visible.

KDI raised its warning level because exports, which play a supporting role in the Korean economy, have fallen into a 'negative growth swamp.' According to the Ministry of Trade, Industry and Energy, Korea's exports last month amounted to $54.99 billion, down 9.5% compared to the same period last year. Exports have continued negative growth for three consecutive months following October (-3.9%) and November (-14%) of last year. In particular, semiconductors, a key export item, have been in negative growth for five consecutive months since turning to a decline of -6.8% in August last year.

KDI analyzed that export sluggishness indicates an economic slowdown. KDI said, "Investment indicators showed relatively favorable signs, but due to the global economic slowdown, exports are worsening mainly in semiconductors," adding, "(Export sluggishness) suggests that the economy is slowing down."

Furthermore, KDI forecasted that downward pressure on the economy could expand more than now. This is based on the judgment that interest rate hikes in major countries will gradually have ripple effects on the real economy. KDI analyzed, "Global economic slowdown continues as manufacturing sentiment indicators and the OECD leading index continue to decline," and "Due to a strong monetary tightening stance in response to high inflation, consumption and manufacturing sentiment have worsened in many countries, making it likely that the economic slowdown will continue for the time being." KDI added, "Due to concerns about domestic and external economic slowdown, household and corporate sentiment indices remained at low levels," and "The prolonged Ukraine crisis also increases downside risks to the economy."

Major institutions have already downgraded their global economic growth forecasts for this year. According to KDI, the median global economic growth forecast by major institutions for this year is 2.1%. Considering that the median global economic growth forecast by major institutions was 3.2% as of June last year, it means a downward revision of 1.1 percentage points in just half a year.

During the same period, South Korea's economic growth forecast decreased by 0.8 percentage points from 2.5% to 1.7%. KDI stated, "Due to monetary tightening in major countries, energy supply instability, and the spread of COVID-19 in China, concerns about economic recession have increased in some regions such as Europe."

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