KDI "Economy is Recovering but Economic Uncertainty Rises Due to COVID-19 Spread"

Korea Development Institute Publishes May Issue of Economic Trends

[Sejong=Asia Economy Reporter Kim Hyunjung] The Korea Development Institute (KDI), a government-funded research institute, recently assessed the economic situation, stating that while the economy is recovering, economic recession risks remain high due to factors such as the spread of COVID-19.

On the 10th, KDI published the "Economic Trends May Issue," stating, "In April, the daily number of new domestic COVID-19 cases recorded around 600, an increase from the previous month, with the spread of variant viruses, maintaining high economic uncertainty." KDI explained, "The service sector slightly rebounded following the easing of social distancing measures since mid-February, but still shows signs of contraction," adding, "Accordingly, employment in face-to-face service industries such as accommodation and food services continued to decline despite the base effect."

Regarding the manufacturing-centered economic recovery, KDI evaluated it as "solid." The institute noted, "With improved consumer sentiment, imports of consumer goods continued to increase sharply, and seasonally adjusted retail sales also surged compared to the previous month," further stating, "Exports and facility investment showed high growth rates as external demand improved."

In fact, total industrial production in March recorded a 5.8% increase, higher than the previous month (0.4%), as production in both manufacturing and service sectors expanded. Manufacturing maintained a high average operating rate (77.4% → 75.0%), with an increased shipment growth rate (1.3% → 3.5%) and a declining inventory ratio (102.9% → 102.2%), indicating continued improvement. The March coincident index cyclical component (99.7 → 100.2) and leading index cyclical component (102.9 → 103.1) both rose slightly compared to the previous month.

However, despite favorable external demand and easing domestic demand sluggishness, KDI assessed that uncertainty due to concerns over a resurgence of COVID-19 remains. The institute forecasted, "With the daily average of new COVID-19 cases maintaining a high level around 600 and the proportion of variant viruses imported from overseas gradually increasing, the recovery of face-to-face service industries may be constrained in the future."

Regarding employment, KDI judged that a sluggish trend continued mainly in face-to-face service sectors. KDI explained, "In March, employment turned to an increase of 314,000 from a decrease of 473,000 in the previous month due to the base effect from the sharp drop in March last year (-195,000) caused by the first wave of COVID-19. However, sectors that experienced concentrated employment shocks during the first wave, such as wholesale and retail trade (-194,000 → -168,000) and accommodation and food services (-232,000 → -28,000), continued to decline."