Signal of Long-Lasting Recession?
The composite leading indicator (CLI) of South Korea provided by the OECD fell for 17 months in a row. Concerns are rising over the present and future of the South Korean economy.
According to the OECD, South Korea’s CLI was 99.2 in August this year, down 0.1 point from a month earlier. The CLI is to predict economic conditions six to nine months ahead. The reference point is 100 and a CLI of less than 100 implies that the conditions are likely to deteriorate.
South Korea’s CLI reached 101 in March last year and has continued to fall since then. It has remained below the reference point since April this year. The ongoing downtrend is the longest since the month-on-month decline that continued for 20 months from September 1999 to April 2001.
The downtrend implies that a long-lasting recession is becoming more and more likely. Some are pointing out the South Korean economy is already slowing down and there will be no growth for the time being.
According to the Bank of Korea, South Korea’s real GDP rose 0.6% quarter on quarter in the third quarter of this year. The growth rate was 1.0% in the first quarter but fell to 0.6% in the second quarter.
Employment conditions are not favorable, either. The number of new employees rose by less than 100,000 for eight months in a row until September. The Korea Composite Stock Price Index (KOSPI) closed at 2,027.15 on October 26, the lowest since January 2.
Under the circumstances, the Bank of Korea recently lowered its economic growth forecast for this year from 2.9% to 2.7%. Likewise, the IMF and the South Korean government adjusted their estimates from 3.0% to 2.8% and from 3.0% to 2.9%, respectively.
When it comes to next year, the central bank and the Korea Development Institute mentioned 2.7%. The IMF, the Hyundai Research Institute and the LG Economic Research Institute predicted a growth of 2.6%, 2.6% and 2.5% each.