The Korea Development Institute (KDI) has been continuing its assessment that the recovery of domestic demand in the Korean economy is being constrained for over a year. They also expressed concern about the increased uncertainty in the trade environment with the inauguration of the second Trump administration, which has heightened the possibility of an export slowdown.
In the “Economic Trends December Issue” released today (9th), KDI evaluated that “recently, our economy is seeing a constraint in economic improvement, particularly in the construction sector, while uncertainty is expanding.” KDI has been maintaining the evaluation of ‘domestic demand recession’ in the Korean economy for 13 consecutive months since December last year.
The current issue particularly points out that “weakness in product consumption continues, and service consumption also remains in slow growth, indicating fragile consumption.” In October, retail sales decreased by 0.8% compared to a year ago, with several items like home appliances (-5.9%), communication devices & computers (-15.4%), and cosmetics (-15.5%) underperforming.
The service sector also showed a low growth rate with a decline in production in sectors closely related to consumption, such as accommodation and food services (-1.2%) and arts, sports, and leisure-related services (-0.6%). The sluggishness in construction investment is also persisting. Despite an increase in working days, construction completion in October decreased by 9.7% compared to the previous year and continued a declining trend for six consecutive months with a 4% drop from the previous month.
There is also expressed concern about exports, which have driven the country’s economic growth. KDI assessed that “despite a favorable trend in ICT (Information and Communications Technology) items, the previously high growth rate is seeing some adjustment.” In November, exports recorded a lower growth rate of 1.4%, compared to the previous month’s 4.6%.
On a daily average basis, ICT showed a high growth rate of 25.8%, but general machinery (-18.2%), petroleum products (-17%), and petrochemicals (-3.6%) decreased. KDI stated, “Semiconductor exports are still increasing, but the growth rate is slowing,” and noted that “with Trump’s election leading to increased uncertainty in U.S. trade policy, the export conditions are somewhat worsening.”
Regarding employment, KDI analyzed that “employment conditions are seeing a mild adjustment, particularly in sectors closely related to domestic demand, like retail and construction.” The number of employed people in October increased by 83,000, showing a reduced growth compared to the previous month’s increase of 144,000.
Due to weak domestic demand, KDI also analyzed that the inflationary trend is slowing down. They stated, “With weak domestic demand, demand-side pressure remains low,” and forecasted that “as there is a time lag before the recent base rate cut impacts domestic demand, the slowdown in inflation will continue for a while.”
Regarding the global economy, they mentioned that “policy uncertainty has significantly increased since the U.S. presidential election,” and noted the possibility of “worsened global trade conditions leading to increased downward pressure on the economy.”
[Photo Source: Yonhap News / Provided by KDI]
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