Concerns Over Economic Recession Ease Partially After 14 Months of Economic Slowdown

Recent Economic Trends in August
"Recovery in Export Volume, Partial Easing of Economic Slowdown"
Employment and Price Stability with "Start of Semiconductor Recovery" Evaluation

The government officially diagnosed that the economic slowdown has begun to ease 14 months after it started to worry about a recession. This assessment was based on favorable inflation and employment figures, as well as a recent recovery in exports centered on semiconductors.

On the 11th, the Ministry of Economy and Finance stated in the ‘August Recent Economic Trends (Green Book)’ that “the economic slowdown trend is partially easing due to the recovery of export volumes such as semiconductors, continued improvement in economic sentiment, and employment.” Although it added a caveat that “monthly volatility may occur,” it judged that the overall economy has begun to revive gradually.

Lee Seung-han, head of the Economic Analysis Division at the Ministry of Economy and Finance, explained, “It is still too early to judge whether the economy has hit bottom, and it is difficult to say whether it has or has not.” However, he added, “Since manufacturing and exports, which were the biggest factors in the economic downturn, are rebounding in terms of volume, we have taken a more positive view of the economic outlook compared to last month.” He also said, “The overall trend is expected to improve moderately.”

This expression came out 1 year and 2 months after the government announced in June last year that there were concerns about an economic slowdown. The government maintained the same expression for seven months, then raised the level of expression from this January with terms such as ‘expanded concerns,’ ‘manifestation’ (February), and ‘persistence’ (May). Although positive expressions appeared last month indicating that downside risks were easing, the economy itself was still seen as slowing down.

The background to the analysis that the economy is recovering lies in semiconductors. Semiconductor-related indicators have been gradually improving as the second half of the year begins. The semiconductor production growth rate recorded -21.6% year-on-year in April but improved through May (-18.7%) and June (-15.9%). The export volume index also decreased by 1.3% in April but rebounded to 8.1% in May and increased to 21.6% in June. Semiconductor shipments in June rose 41.1% month-on-month, while inventories decreased by 12.3% during the same period.

Slow Recovery Speed Despite Reviving Economy

Exports, which had been sluggish, are also evaluated as having passed the bottom. According to the Bank of Korea’s announcement on the 8th, the current account surplus in June reached $5.87 billion. This marked two consecutive months of surplus following $1.93 billion in May. Although the prevailing expectation was that a deficit would not be overcome within the first half of the year, this was overturned, and a cumulative surplus of $2.44 billion was recorded.

Employment and inflation also remain stable. Last month, the number of employed persons increased by 211,000 to 28.686 million, pushing the employment rate up by 0.3 percentage points to nearly 63.2%. The unemployment rate also fell by 0.2 percentage points to 2.7%. Although the increase in employed persons and youth employment have been declining for several months, the indicators themselves are in the best condition since statistics began to be compiled.

Consumer prices recorded a 2.3% year-on-year increase as the price stability of petroleum products and the slowing rise in personal service prices continued. Despite a 4.7% month-on-month increase in agricultural product prices due to heavy rains, prices of livestock products (-1.6%) and seafood (-0.9%) fell, resulting in an overall 0.5% decrease in agricultural, livestock, and fishery products. Petroleum products also recorded the largest-ever monthly decline (-25.9%) last month due to stable international oil prices and the extension of fuel tax reduction measures.

The problem lies in the speed of economic rebound. Contrary to initial expectations, the government views the effect of China’s reopening as “mixed with concerns about constraints.” Recovery remains slow due to sluggish exports, investment, and manufacturing. Semiconductor exports in June were still 28% lower compared to a year ago, and the current account surplus is about one-tenth of the first half of last year ($24.87 billion). Uncertainties such as monetary tightening, the Russia-Ukraine war, and volatility in raw material prices continue.

The Ministry of Economy and Finance said, “While focusing on stabilizing people’s livelihoods by promptly responding to price instability and damage caused by heatwaves and heavy rains, we will simultaneously work on supplementing economic vitality in the second half, thoroughly managing domestic and external risks, and improving the economic structure.”

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