[The Editors' Verdict] Hoping for a Spring Breeze in the Economy Too

The feeling of spring is unmistakable. Last weekend was a three-day holiday, so I went on a trip after a long time. I visited Jeondeungsa Temple in Ganghwado and Seokmodo Island via Incheon. There were many people everywhere I went. According to the news, tourist spots nationwide, including Gangwon and Jeju, were crowded during the last weekend holiday, and Incheon Airport was bustling with tourists heading overseas. Many people also gathered at local festivals such as the Jeonju Film Festival and the Hwangmaesan Azalea Festival in Sancheon and Hapcheon.

On April 28, Asia Economy published two articles under the headline [Domestic Demand Revives]. Although the Bank of Korea reported that the real Gross Domestic Product (GDP) for the first quarter of this year grew by only 0.3% compared to the previous quarter, private consumption increased by 0.5%, playing a supportive role. The easing of COVID-19 restrictions, including the lifting of the indoor mask mandate after three years, significantly boosted face-to-face activities. The recovery in consumption was particularly evident in tourism-related sectors such as travel and restaurants.

The trend of consumption recovery was also seen in offline retail sales, including department stores and large supermarkets. According to the Ministry of Trade, Industry and Energy, sales of 25 major domestic retailers last month increased by 6.4% compared to the same period last year. This was thanks to the rise in outing populations, which greatly increased spending on clothing, accessories, and other goods.

It appears that money not spent during the COVID-19 period still remains as excess savings. According to the Bank of Korea, the household net savings rate was 12.4% in 2020 and 11.6% in 2021, the highest levels since 1999 (13.2%). This is the first time since the 2000s that the savings rate has been in double digits. High inflation and high interest rates continue to be significant burdens on the economy, and some people are still facing difficulties. However, overall, household consumption capacity seems to be relatively sound.

Foreign tourists have noticeably increased in places like Gyeongbokgung Palace and Myeongdong Street. Although Chinese tourists have not yet returned to pre-pandemic levels, tourists of various nationalities have filled the gap. A merchant in Myeongdong said, “Sales seem to have recovered to about 80% compared to before COVID-19.”

Recently, what has been holding back our economy is the decline in exports due to the semiconductor market downturn and the trade deficit. Exports have decreased for seven consecutive months from October last year to April this year. The trade deficit has persisted for 14 months.

However, the situation may improve from the second half of the year. Hanwha Investment & Securities recently forecasted in a report that Korea’s economy will improve after passing the low point in the second quarter, centered on export recovery due to easing semiconductor inventory burdens in the second half. The Bank of Korea stated in a recent report that although the ripple effects of China’s reopening are delayed and exports to China are weaker than expected for the time being, they are expected to gradually recover in the second half due to easing IT market sluggishness and inventory adjustments within China. If this happens, the government’s and Bank of Korea’s economic outlook of a “low in the first half and high in the second half” could become a reality this year.

Of course, this is the most optimistic view of our economy. According to economic experts, more people tend to see domestic demand as “stable” rather than “reviving.” Although growth rates may increase in the second half, the extent is not expected to be very large.

There is also little room left for macroeconomic policies such as monetary and fiscal policy. The U.S. Federal Reserve (Fed) is maintaining a tightening stance, and the possibility of a rate cut within this year is low. In this situation, it is difficult for the Bank of Korea to cut interest rates before the Fed. National tax revenue in the first quarter of this year was 24 trillion won less than a year ago. Due to the economic downturn and sluggish asset markets, a large-scale “tax revenue shortfall” seems inevitable this year. It is difficult to reduce planned government spending, so deficit bonds will have to be issued, which will burden fiscal soundness.

Nevertheless, I want to remain as positive as possible. Because the economy is about psychology. I hope a spring breeze blows through our economy as well.

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