KDI "Economic Recovery Uncertainty Increased"... Outlook Changed After One Month

KDI September Economic Trends
China's Economic Uncertainty and Rising International Oil Prices
"May Limit the Easing of Economic Downturn"

The Korea Development Institute (KDI), a government-funded research institute, diagnosed that uncertainty over economic recovery has increased due to instability in the Chinese economy. This marks a slight setback compared to last month's economic assessment, which had evaluated that the economic downturn was gradually easing.

In the ‘September Economic Trends’ report published on the 7th, KDI stated, “Our economy is experiencing a slight easing of export sluggishness, but external uncertainties such as instability in the Chinese economy are increasing.” Although the decline in semiconductor exports is gradually easing, the assessment is that uncertainty over Korea’s economic recovery has somewhat increased due to factors like instability in the Chinese economy.

Last month, KDI analyzed that “the decline in manufacturing production centered on semiconductors is slowing, and service sector production continues a moderate upward trend, indicating that the economic downturn is gradually easing.” In July, attention was drawn to indicators showing a turnaround in semiconductor export volumes, with the statement that “the manufacturing slump centered on semiconductors is partially easing, and the economy is passing its bottom.” However, this month, overlapping external economic uncertainties have led to an adjustment toward emphasizing uncertainty over economic recovery.

Jung Kyu-chul, head of KDI’s Economic Outlook Office, explained, “The diagnosis of easing economic downturn itself has been maintained at a level similar to last month, but uncertainty about whether this trend can continue in the future has increased compared to before.”

In particular, concerns over increased instability in the Chinese economy and rising international oil prices have expanded upward pressure on inflation, heightening economic uncertainty. KDI evaluated, “The Chinese economy faces expanded downside risks due to financial instability in real estate companies and sluggish real estate investment. Additionally, the rise in international oil prices has expanded consumer price inflation, which may partially constrain the easing trend of the economic downturn.”

The year-on-year decline in semiconductor production narrowed slightly from -15.8% in June to -14.8% in July. The daily average export value decline of semiconductors also eased from -31.1% in June and -33.6% in July to -20.6% in August. However, the manufacturing inventory ratio rose significantly from 112.3% in the previous month to 123.9%, and the business survey index (BSI) for manufacturing business outlook declined, indicating expanding economic uncertainty. The manufacturing business outlook BSI dropped from 71 last month to 67 in September.

KDI also noted, “While the moderate increase in service consumption was maintained, the decline in goods consumption widened, resulting in continued consumption sluggishness.” The consumer sentiment index in August recorded 103.1, continuing the improvement from 103.2 in the previous month. However, due to the end of the individual consumption tax cut and high inflation, the retail sales growth rate turned from 1.5% last month to -1.7% in July. It also decreased by 3.2% month-on-month, continuing the sluggish trend.

Regarding facility investment, KDI diagnosed, “The decline in both machinery and transportation equipment has widened, and leading indicators suggest that sluggishness in facility investment is likely to continue.” Regarding construction investment, it stated, “Construction investment, centered on the building sector, is maintaining a high growth rate, but construction orders and housing starts continue to decline sharply, indicating a possible slowdown in growth in the future.”

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