KDI "Continued Economic Contraction Due to Decline in External Demand... Domestic Demand Weakness Partially Eased"

KDI Economic Trends July Issue

(Photo) [Image source=Yonhap News]

[Sejong=Asia Economy Reporter Joo Sang-don] The Korea Development Institute (KDI) evaluated on the 8th that "Recently, our economy has seen a mitigation in consumption stagnation, but economic contraction continues due to a decline in external demand caused by the global spread of the novel coronavirus infection (COVID-19)."

On the same day, KDI published the July issue of the KDI Economic Trends containing this assessment.

First, KDI noted that consumption slightly recovered due to the distribution of emergency disaster relief funds and the transition to a social distancing-based quarantine system, and facility investment maintained an increasing trend, partially alleviating domestic demand stagnation. Durable goods consumption, centered on automobiles, continued a double-digit growth rate following the previous month, service industry production saw a reduced decline, and despite severe sluggishness across manufacturing, facility investment showed a high growth rate mainly driven by semiconductor-related investments.

However, it expressed concern that exports continue to sharply decline due to shrinking external demand. The average daily export value in June decreased by 18.5% year-on-year, mainly in automobiles and petroleum products. In May, manufacturing production fell by 6.9%, and the inventory ratio recorded 128.6%, 8.6 percentage points higher than the previous month (120.0%). The average operating rate in manufacturing dropped from 68.2% to 63.6%, a level similar to the lowest points during the last two economic crises (July 1998 at 63.2%, December 2008 at 62.5%).

A KDI official stated, "Despite some recovery in leading indicators of the global economy, industrial production and trade volume continue to decline, and with the spread of COVID-19 and the US-China confrontation, economic uncertainty remains high," adding, "The increase in new domestic and international COVID-19 cases could act as a downward pressure on the economy."