KDI "Manufacturing Slump Eases Centered on Semiconductors... Middle East Geopolitical Uncertainty Remains"

Korea Development Institute (KDI) November Economic Trends Announcement

Although the economic downturn is easing centered on semiconductors, a national policy research institute has diagnosed that external conditions remain uncertain.

The Korea Development Institute (KDI) stated in its November economic trends report released on the 7th that “while the service sector production continues a moderate upward trend, the slump in manufacturing production and exports, centered on semiconductors, is easing.” However, it added, “external uncertainties persist due to rising U.S. market interest rates and escalating tensions in the Middle East.”

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In the October economic trends report, KDI said, “Our economy is seeing a partial recovery in semiconductor production, easing the manufacturing slump, but external uncertainties persist as the U.S. maintains its monetary tightening stance.” In September, it noted, “Our economy is experiencing a slight easing of export sluggishness, but external uncertainties are somewhat increasing.” In this latest assessment, concerns about external uncertainties remain, with Middle East tensions cited as a factor exacerbating external instability.

However, compared to the October evaluation that semiconductor production was “partially” recovering and easing the manufacturing slump, the latest report emphasizes a more positive economic recovery trend. KDI observed that “the slump is easing in most export items, including semiconductors,” indicating that both manufacturing production and export slumps are alleviating.

KDI attributed the significant increase in manufacturing production to a recovery in IT demand, which led to a substantial rise in semiconductor production. Semiconductor output surged from 8.4% in August to 23.7% in September, resulting in an overall industrial production growth rate of 2.8%, higher than the previous month’s 1.3%. Additionally, service sector production continued a favorable growth trend, driven mainly by accommodation and food services (2.4%) due to increased travel demand. Furthermore, “the manufacturing average operating rate (73.2%) remained high following the previous month (73.4%), and the inventory/shipment ratio sharply declined from 124.3% last month to 113.9%, indicating a gradual recovery in manufacturing,” the report stated.

Service consumption in September maintained a moderate increase, supported by the recovery in travel demand. Compared to the previous month, September’s service sector production (0.4%) showed solid growth centered on travel-related areas such as accommodation and food services (2.4%) and transportation and warehousing (2.2%). However, due to the ongoing high interest rate environment, goods consumption continued to show a sluggish trend. Retail sales narrowed their decline from -4.7% in the previous month to -1.9%, but this was mainly attributed to a base effect. Consumer sentiment also worsened as the consumer sentiment index fell from 99.7 last month to 98.1, reflecting deteriorating consumption conditions amid rising interest rates.

Facility investment in September continued its sluggish trend, declining from -14.6% in the previous month to -5.7%. Despite the easing of the semiconductor production slump, semiconductor inventories remain high, keeping demand for new semiconductor investments low. Construction investment generally maintained a favorable growth trend. Construction performance in September recorded a high growth rate of 14.5%, following 10.8% in the previous month. However, leading indicators such as construction orders and housing starts continued to decline sharply. Construction orders stood at 13.1 trillion won, significantly below the recent five-year average of 15.1 trillion won, and housing starts showed a steep decline of -63.6%. This reflects the sluggish real estate market and deteriorating profitability of construction companies.

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