Semiconductor Export Boom Expands Signs of Economic Recovery... Concerns Over Private Consumption and Construction Investment (Comprehensive)

The government has assessed that signs of economic recovery are gradually expanding. Following its evaluation in November-December last year that "signs of economic recovery are appearing," it has presented a more positive economic outlook. The increase in exports of ships (47%) and semiconductors (13%) is seen as driving the economic recovery. However, it pointed out concerns that the slowdown in private consumption due to high interest rates is likely to continue until the first half of the year, and that there are worries about sluggish construction investment due to the fallout from real estate project financing (PF) defaults.

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On the 12th, the Ministry of Economy and Finance issued the 'January Recent Economic Trends (Green Book)' and gave a comprehensive assessment that "while the inflation rate continues to slow down, signs of economic recovery centered on exports are gradually expanding." Lee Seung-han, Director of the Comprehensive Policy Division at the Ministry of Economy and Finance, explained, "Exports are holding up relatively well, better than expected, and considering that these positive trends are continuing."

The government's economic perception has gradually improved. In August last year, it mentioned that "the economic slowdown is partially easing," and in November last year, for the first time in 17 months, it stated that "signs of economic recovery are appearing." This perspective was maintained in December, and in January this year, it took a step further by expressing an expansion of signs of economic recovery.

Exports are leading the economic recovery. Last year, exports increased by 5.1% year-on-year due to expansion in semiconductors, automobiles, ships, and other exports. In December, exports recorded $57.66 billion, up 5.1% year-on-year, and the average daily export amount increased by 14.5% year-on-year to $2.56 billion. By item, ships increased by 47%, semiconductors by 13%, automobiles by 18%, and displays by 11%. By region, among the nine major export regions, the United States grew by 21% and India by 7%.

Exports to China showed a declining trend until December last year as mentioned in the Green Book, but according to the Korea Customs Service's announcement of export figures from January 1 to 10, exports to China increased by 10.1%. This is the first increase in exports to China in 20 months, and the government views this as a positive indicator. The increase in exports to China is attributed to higher semiconductor exports, and there is speculation that if exports of petrochemicals, steel, and machinery also increase, a trend of growth may be possible. Imports in December last year also decreased by 10.8% year-on-year, resulting in a trade surplus of $4.48 billion in December. Although the annual trade balance last year showed a deficit of $9.97 billion, the trend shifted from a deficit in the first half to a surplus in the second half.

Employment also appeared favorable. Director Lee said, "Employment in December last year was better than expected," adding, "The unemployment rate rose, but this seems to be partly due to a surge in applications for senior citizen job programs in December." The economically inactive population decreased by 190,000 in December, and the economic activity participation rate rose by 0.5 percentage points year-on-year to 63.8%.

Inflation is also stabilizing. Consumer prices in December last year rose by 3.2%, showing a slowdown in the rate of increase compared to the previous month (3.3%). International oil prices, which have a significant impact on domestic inflation, also declined due to uncertainties about production cuts by OPEC+ (the Organization of the Petroleum Exporting Countries (OPEC) member countries and non-OPEC consultative group) and increased U.S. crude oil production. Although some concerns have emerged following Iran's announcement that it seized a U.S. tanker in the Strait of Hormuz the day before, the government explained that overall prices are declining.

Although the U.S. consumer price index released the day before showed a 3.4% increase year-on-year, exceeding expectations, there remains optimism about interest rate cuts. Director Lee evaluated, "We were concerned because U.S. inflation appeared somewhat high, but expectations for an early shift in monetary policy continue in the U.S. financial market," adding, "The 10-year U.S. Treasury yield is falling, and bond yields are declining, while the U.S. stock market remains flat."

However, risks include the slowdown in private consumption due to high interest rates and concerns about sluggish construction investment linked to the PF crisis. Private consumption in the third quarter of last year increased by only 0.3% quarter-on-quarter, and domestic sales of Korean passenger cars in December last year decreased by 12%.

Director Lee said, "High inflation and high interest rates have a significant impact on consumption, and even if the current levels are maintained, I think the peak of the high interest rate impact will be until the first half of this year," adding, "Therefore, I expect private consumption to remain sluggish until the first half." The government plans to prioritize the recovery of the livelihood economy based on firm price stability, thoroughly manage potential risks such as real estate PF, and simultaneously pursue policy efforts to enhance economic dynamism.

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