KDI "Our Economy Shows Signs of Increasing Uncertainty"

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The Korea Development Institute (KDI) diagnosed the state of our economy as showing "an expansion of uncertainty."

On the 9th, KDI released the 'December KDI Economic Trends' report, stating, "Recently, our economy has shown signs of expanding uncertainty amid constraints on economic improvement centered on the construction industry." Economic sentiment has darkened somewhat. Last month, KDI noted that "domestic demand recovery is constrained," but also that "a favorable export trend is being maintained."

However, since the economic trends reflect indicators from one or two months prior, this analysis did not incorporate the impact of the martial law declaration issued on the night of the 3rd.

The construction industry, cited as a factor limiting economic improvement, was evaluated as 'sluggish.' Industrial production in October decreased by 0.3% month-on-month, seasonally adjusted. Despite growth centered on manufacturing and services, the continued sluggishness in construction caused this decline. Construction production fell sharply by 9.7% following a 12.9% decrease the previous month. Construction investment also remained sluggish due to accumulated order declines. The building sector decreased by 12%, showing weakness in both residential and non-residential areas, while civil engineering also showed a downward trend.

Domestic demand was also assessed as weak. In particular, sluggishness in goods consumption continued, and service consumption remained at a mild increase, described as "feeble." Looking at the October retail sales indicators, passenger cars increased significantly due to more working days, but many items showed poor performance, including home appliances (-5.9%), communication devices and computers (-15.4%), and cosmetics (-15.5%). Regarding the strong performance of passenger cars, KDI noted, "Considering that domestic automobile sales decreased by 6.4% in November, it is difficult to interpret this as a trend of easing sluggishness."

Regarding exports, KDI explained, "Despite favorable trends in ICT items, the previously high growth rate appears to be somewhat adjusting." Last month, exports increased by 1.4%, a decline in growth rate compared to the previous month (4.6%). While ICT items showed a high growth rate of 25.8%, general machinery (-17.2%), petroleum products (-17.0%), and petrochemicals (-3.6%) decreased due to weak global demand. KDI added that although the growth rate declined somewhat rapidly, temporary factors such as shipping delays caused by adverse weather at the end of the month played a role.

Analysis also suggested that export conditions have somewhat deteriorated due to increased uncertainty in U.S. trade policy. KDI warned, "The global economy maintained a moderate growth trend due to strong growth in the U.S. and interest rate cuts," but also noted that "downward pressure on the economy has increased due to the possibility of worsening global trade conditions." The cause was attributed to policy uncertainty following the election of U.S. President Donald Trump.

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