Due to Semiconductor Export Slump... Ministry of Economy and Finance: "Economic Slowdown for 4 Consecutive Months"

May Recent Economic Trends Published by Ministry of Economy and Finance on 12th
Domestic Demand Shows Gradual Recovery Amid Slowing Inflation
Manufacturing-Led Economic Slowdown Continues Due to Semiconductor Export Decline

The government assessed that the slowdown in our economy has continued for four consecutive months. Since raising the level of concern from 'concern about economic slowdown' to 'economic slowdown' in February, the government has maintained the same stance for four months. The government evaluated that while the inflation rate is continuously slowing down and domestic demand is gradually recovering, the slowdown in exports centered on semiconductors is dragging down the economic recovery.

Ministry of Economy and Finance Maintains 'Economic Slowdown' Expression for 4 Months

On the 12th, the Ministry of Economy and Finance stated in the 'Recent Economic Trends (Green Book) for May 2023' that "the economic slowdown centered on manufacturing, such as sluggish exports and facility investment, continues." The ministry used the same phrase last month and diagnosed that "the current (economic) slump is concentrated in manufacturing, especially in specific sectors such as information technology (IT) and semiconductors." April exports decreased by 14.2% year-on-year due to sluggish exports of IT products such as semiconductors, wireless communication, and displays. Industrial production in March fell by 7.6% year-on-year.

The ministry also said, "Externally, expectations for the effect of China's reopening are mixed with downside risks such as financial instability in vulnerable sectors due to monetary tightening and the prolonged Russia-Ukraine war, resulting in continued uncertainty in the global economy." Accordingly, the ministry stated, "Under price and livelihood stabilization and management of domestic and external risks, we will focus on strengthening the economic cooperation base, enhancing vitality in exports, investment, and domestic demand, and structurally improving the economic system." The phrase 'strengthening the economic cooperation base,' which was not mentioned last month, was added. Lee Seung-han, head of the Economic Analysis Division at the Ministry of Economy and Finance, explained, "The government is actively continuing diplomatic and external activities with countries such as the United States and Japan, aiming to revitalize through inter-country exchanges."

Domestic Demand Sector Shows 'Gradual Recovery'

Regarding the domestic demand sector, it was analyzed that a gradual recovery trend continues. Service production in March increased by 0.2% compared to the previous month and by 6.2% year-on-year. The number of Chinese tourists visiting Korea increased by 1191% compared to a year ago. Domestic credit card approvals also rose by 5.6% year-on-year. However, department store sales decreased by 0.8% compared to the same month last year.

Inflation was diagnosed as 'continuously' slowing down. Consumer prices in April rose by 3.7% year-on-year, slowing to the 3% range for the first time in 14 months. This was due to the recovery of spring vegetable supply stabilizing the rise in agricultural and marine product prices, and the decline in petroleum products despite OPEC+'s production cut decision. However, personal services continue to see rising prices as accumulated cost burdens and recovery in travel demand have pushed up prices for dining and other services.

Lee Seung-han, head of the Economic Analysis Division, said, "Although KDI also downgraded its economic outlook, it actually raised its forecast for private consumption," adding, "Since an upward trend is appearing in private consumption, the ongoing recovery in domestic demand can be viewed positively." On the 11th, KDI stated, "Domestic demand sluggishness is easing centered on consumption, and service production is maintaining a high growth rate," and slightly lowered this year's consumer price inflation forecast from 3.5% announced in February to 3.4%.

The number of employed persons in April increased by 354,000 compared to a year ago. However, due to the decline in exports, employment in the manufacturing sector recorded the largest decrease in 28 months since December 2020. The housing market is in a downward trend. Nationwide housing sales prices in March fell by 0.78% compared to the previous month, and jeonse (long-term lease) prices also dropped by 1.13% month-on-month.

KDI Lowers This Year's Growth Forecast from 1.8% to 1.5%

The Korea Development Institute (KDI) lowered its economic growth forecast for this year to 1.5% from the 1.8% forecast made in February in its '2023-2024 Domestic Economic Outlook' released on the 11th. This was due to the assessment that the semiconductor industry's recovery is progressing more slowly than expected. The growth rate for next year is expected to reach 2.3%.

KDI maintained its 'low in the first half, high in the second half' outlook, expecting the economy to improve in the second half compared to the first half, but clarified that this is a 'relative' meaning. It also expressed concern that if China's economic recovery is delayed, South Korea's economic growth rate could fall to the low 1% range.

Jung Kyu-chul, head of KDI's Economic Outlook Office, explained, "The biggest reason for the downward revision is the semiconductor industry's slump," adding, "The situation is going in a slightly worse direction than when we made the forecast in February, and the speed of semiconductor industry recovery in the second half is likely to be slower than initially expected, so we lowered the growth rates for both the first and second halves."

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