Government: "Downside Economic Risks Growing Due to Middle East Uncertainties"... Drops 'Recovery Trend' Assessment

The government has assessed that, despite robust export performance centered on semiconductors, downside risks to the economy are growing due to the expanding risks stemming from the Middle East war. Notably, the government has removed the phrase "economic recovery trend," which had been maintained for five months, from its report, signaling a more cautious economic outlook.

On April 17, the Ministry of Economy and Finance stated in the April edition of its "Recent Economic Trends (Green Book)" that, "Recently, the Korean economy has seen continued strong exports, mainly in semiconductors, and improvements in domestic demand including consumption. However, downside risks to the economy are increasing due to the expanding geopolitical risks arising from the Middle East war." The government has shifted the focus of its economic assessment to highlight external uncertainties and downward pressures, dropping the phrase "recovery trend" that had been used since November of last year.

The government noted, "The Middle East war is dampening consumer and business sentiment, while rising international oil prices are fueling inflation and increasing the burden on people's livelihoods." It added, "As major countries impose tariffs and the global trade environment deteriorates, volatility in international financial markets and energy prices is increasing, raising concerns about slower trade and economic growth."

On the 27th, cargo containers were stacked at Pyeongtaek Port as seen from the air. [Aerial shooting cooperation = Seoul Metropolitan Police Agency Aviation Unit, Pilots: Lieutenant Shin Seungho - Lieutenant Park Jihwan, Crew: Lieutenant Park Sangjin] Photo by Jinhyung Kang aymsdream@

원본보기 아이콘

Looking at real economy indicators, production has returned to growth. According to the February Industrial Activity Trends, total industrial production increased by 2.5% from the previous month, with manufacturing up 5.4%, construction up 19.5%, and services up 0.5%. Although a simultaneous recovery was observed across industries, rebounding from the previous month's decline, the year-on-year increase was limited, leading to the assessment that the pace of recovery remains moderate.

On the expenditure side, facility investment rose by 13.5% from the previous month, while retail sales remained flat at 0.0%. Although the recovery in consumption continues, business sentiment remains unstable. Exports, driven by semiconductors, computers, and wireless communications, surged 49.2% year-on-year in March, continuing to underpin the economy.

However, sentiment indices have weakened. The Consumer Sentiment Index (CSI) for March fell 5.1 points from the previous month to 107.0, and the Corporate Business Sentiment Index (CBSI) dropped by 0.1 point to 94.1. The outlook for April declined by 4.5 points to 93.1, reflecting weakening expectations for the economic outlook. Analysts point out that the possibility of a prolonged Middle East war and rising energy prices are simultaneously dampening consumer and investment sentiment.

Economic indicators continued to show improvement. The coincident index for February rose by 0.8 points from the previous month, and the leading index increased by 0.6 points, partially reflecting expectations for future recovery. However, the divergence from sentiment indicators has increased uncertainty about the sustainability of future economic trends.

The labor market maintained its growth. The number of people employed in March increased by 206,000 compared to the same month a year ago, while the unemployment rate fell by 0.1 percentage point to 3.0%. Nevertheless, sluggishness in certain sectors such as manufacturing and construction means that vulnerabilities remain in the quality of employment.

Inflationary pressures have re-emerged. The consumer price index in March rose 2.2%, with the rate of increase accelerating from the previous month. Petroleum product prices, affected by the Middle East war, surged 9.9% year-on-year, raising the likelihood that upward pressure on prices will persist going forward.

The government stated, "We will maintain an emergency economic response system to minimize the impact of the Middle East war," and added, "We will closely monitor changes in the situation and the impact on each sector, promptly implement supplementary budgets, and actively address challenges on the ground."

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.