Government: 'Economic Slowdown' Continues... Downside Risks 'Somewhat Eased' → 'Eased' (Summary)

Ministry of Economy and Finance 'Recent Economic Trends' July Issue
Partial Improvement in Export Slump Positive
Consumer Sentiment Index Rises 2.7%P
Uncertainty Over China's Weak Reopening

Although the recent slowdown in the South Korean economy continues, the government has diagnosed that downside risks in domestic demand and employment are easing.

On the 14th, the Ministry of Economy and Finance explained through the July issue of the "Recent Economic Trends (Green Book)" that "the economic slowdown centered on manufacturing continues," but also noted "signs of easing downside risks due to some alleviation of export sluggishness, gradual improvement in domestic demand and economic sentiment, and solid employment."

The government gave stronger positive assessments of the economic improvement trend this month. In the June Green Book, it mentioned a "continued" decline in the inflation rate and a "slight" easing of downside risks. However, in this month's Green Book, the slowdown in inflation was evaluated as "clear," and the downside risks were seen as having progressed from "slight easing" to "easing."

Lee Seung-han, head of the Economic Analysis Division at the Ministry of Economy and Finance, said, "In June, we mentioned that the inflation rate was 'continuously' declining, but this month we raised the tone slightly, saying the slowdown in inflation is clear," adding, "In June, semiconductor and shipbuilding export values reached their highest levels this year, and we estimate that the export volume index may turn positive."

[Image source=Yonhap News]

The government judged that exports, which had been sluggish, are gradually recovering. Last month, exports decreased by 6% compared to a year earlier, but the decline was the smallest in eight months since November last year. Considering the number of working days, the average daily export was $2.36 billion, down 10.1% from the previous year. The trade balance recorded a surplus of $1.13 billion, marking a surplus for the first time in 16 months. Total industrial production also increased by 1.3% month-on-month as of May. Mining, manufacturing, and electricity & gas sectors all saw increases, leading to a 3.2% rise in industrial production compared to the previous month. Public administration (5.6%) and construction (0.5%) also rose. However, service sector production decreased by 0.1% compared to the previous month.

The consumer price inflation rate was 2.7% year-on-year, entering the 2% range for the first time in 21 months, raising expectations for a high-in-the-first-half, low-in-the-second-half trend in the second half of the year. Lee said, "Because inflation is greatly affected by weather conditions and volatility in international oil prices, it could fall below 2.7%. However, it is too early to specify the exact timing."

Domestic demand is also showing a gradual recovery. Retail sales, which indicate consumption trends, increased by 0.4% month-on-month in May. Last month, South Korea's Consumer Sentiment Index (CSI) rose 2.7 points from the previous month to 100.7. Domestic card approval amounts increased by 5.4% compared to a year ago, and the number of Chinese tourists visiting Korea surged by 1303.3% year-on-year. Employment in June increased by 333,000 compared to the same month last year. The unemployment rate fell by 0.3 percentage points from a year ago to 2.7%.

On the 30th, milk is displayed at a large supermarket in Seoul, where crude oil prices are expected to increase by about 69 to 104 won per liter. Photo by Jinhyung Kang aymsdream@

However, regarding the decline in corporate sentiment this month, the government judged that domestic and external uncertainties remain. Lee said, "Last year, the main reason corporate sentiment was at its worst was due to concerns about rising raw material prices. Although the factors driving raw material price increases have largely diminished, the combination of the China variable and sluggish exports seems to have lowered corporate sentiment."

The weak reopening effect in China is a variable. The government analyzed, "Externally, expectations for improvement in the IT industry continue," but also noted, "Expectations and concerns about China's reopening effects are mixed, and uncertainties such as monetary tightening and the Russia-Ukraine war persist." The government pointed to the high level of manufacturing inventory in China as a reason for the limited reopening effect. It explained that until China clears its inventory, increasing production or procuring parts from Korea may be constrained.

The government plans to swiftly implement key policy tasks in the second half of the year, including enhancing economic vitality through exports, investment, and domestic demand; stabilizing the livelihood economy such as prices; and improving the economic structure, all under thorough management of domestic and external risks.

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