The Korea Development Institute (KDI) recently evaluated the state of the South Korean economy, noting a recovery in exports but a slowdown in domestic consumption. This marks the third consecutive month that the KDI has assessed a “slowdown in domestic consumption.”
On Feb. 7, the KDI assessed the economic situation in its “February Economic Trends” report, indicating that “Despite the slowdown in domestic consumption, the ongoing recovery in exports is mitigating economic sluggishness.”
Industries related to domestic consumption such as construction and services are showing sluggishness, but mining and manufacturing industries, particularly those centered around semiconductors, are exhibiting signs of recovery. Manufacturing, focusing on semiconductors, is evaluated to be sustaining its recovery momentum with increasing production and shipments, along with a reduction in inventory.
However, it pointed out that manufacturing sectors excluding semiconductors are continuing to decline. Amid a slowdown in domestic consumption due to high interest rates, many industries are faltering. Nonetheless, the recovery in exports, particularly driven by the semiconductor sector, appears to be contributing to alleviating economic sluggishness.
Consumer spending was deemed sluggish, with a decrease in goods consumption and a slowdown in the growth of service consumption. It was evaluated that goods consumption continued to decline amid a high interest rate environment, while service consumption faltered in most sectors excluding transportation closely tied to overseas tourism. Additionally, capital investment remained weak overall due to the prolonged high interest rate environment. Construction investment also showed signs of weakening, particularly in residential construction.
Amid the continued weakness in domestic demand, the impact of base effects resulted in a significant reduction in the magnitude of consumer price inflation. However, concerns remained about the potential for upward pressure on prices in the future due to geopolitical factors leading to increases in oil prices.
Oil prices rose as tensions escalated in the Middle East and expectations for a soft landing of the U.S. economy increased. However, natural gas, metals, and grain prices are generally assessed to be at low levels. This year, oil prices are expected to remain volatile for the time being due to geopolitical risks. However, with the easing of supply concerns, they are predicted to be similar to last year or slightly lower.