KDI "Despite High Export Growth, Domestic Demand Slumps... Weak Economic Recovery"

KDI Publishes June Issue of Economic Trends

Despite the recent strong export growth in the Korean economy, the recovery in domestic demand has not materialized, leading to an assessment that the economic improvement remains weak.

On the 13th, KDI stated in the June issue of 'Economic Trends' that "exports, centered on ICT items, continue to show a favorable trend, but domestic demand has not shown signs of recovery due to the sustained high interest rate environment." While the export recovery trend continues to some extent, the overall economic improvement remains at a somewhat weak level, it analyzed.

In May, total industrial production increased by 2.2% compared to the same month last year, showing signs that the strong growth seen earlier in the year is calming down. Despite a high increase in semiconductors (18.1%), declines in automobiles (-1.9%) and electrical equipment (-18.0%) expanded, reducing the growth rate of manufacturing production. Exports continue to recover, centered on semiconductors.

KDI viewed that although exports maintain a recovery trend, domestic demand remains sluggish due to the continued high interest rates. In May, consumption of most goods categories showed an expanded decline, indicating a somewhat contracted state. Retail sales in May decreased by 3.1% compared to the same month last year. The decline continued mainly in passenger cars (-9.2%) and clothing (-6.8%).

Among service sector production closely related to consumption, wholesale and retail trade (-1.4%) and accommodation and food services (-0.9%) also continued to decline, suggesting weak consumption. Facility investment in May remained sluggish due to the high interest rate environment, decreasing compared to the same month last year, with the decline rate expanding from the previous month (-5.1%). Construction investment also continued to show weakness, mainly in the building sector. Construction output (constant) in March recorded a growth rate of -3.8%, lower than the previous month (-0.1%), mainly due to building sector weakness.

KDI stated that with improved supply conditions for agricultural products, the inflation rate is approaching the price stability target. In particular, this month's issue explained, "Due to sluggish domestic demand caused by sustained high interest rates, the core inflation rate (2.2%) has approached the price stability target, and high inflation phenomena have eased in most items excluding agricultural products and petroleum products."

KDI noted, "The proportion of items with a price increase rate exceeding 3% (31.7%) has shrunk to a level similar to mid-2021, just before the high inflation phenomenon began, indicating that prices are generally stabilizing." The consumer price inflation rate in June recorded 2.4%, maintaining a 2% range for the third consecutive month.

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