KDI "Concerns Over Omicron Variant Spread... Increased Economic Uncertainty"

December Economic Trends

[Sejong=Asia Economy Reporter Son Seonhee] The Korea Development Institute (KDI) diagnosed on the 7th that "recently, our economy has maintained a moderate recovery centered on the service industry, but economic uncertainty is expanding due to concerns about the spread of new variant viruses."

On the same day, KDI published the 'December Economic Trends' and stated about the recent economy, "With the spread of the Omicron variant, quarantine measures have been strengthened domestically and internationally, and the financial market is showing instability, expanding downside risks to the economy."

While KDI diagnosed last month that "the economic recovery was weak," this month it evaluated that the recovery trend is being maintained. KDI analyzed, "As COVID-19 vaccines have been widely distributed and quarantine measures have been eased since September, production, consumption, and employment centered on the service industry showed improvement trends," adding, "In particular, since the phased return to normal life began in November and human mobility expanded, domestic demand improved, as seen in the sharp increase in credit card sales."

However, KDI stated, "The recovery in manufacturing was limited due to ongoing global supply chain disruptions and weakened external demand," and "The contraction in global industrial production and trade volume indicates worsening external conditions." It continued, "Negative signals about the economy appeared partially, such as continued decline in manufacturing production, a sharp rise in inventory rates, and decreases in the coincident and leading economic index cyclical components."

As evidence, it added that manufacturing shipments only slightly increased (-5.7% → 0.4%), inventories surged (3.4% → 7.2%), and the inventory ratio rose sharply (113.5% → 121.0%), indicating that negative signals are gradually expanding.

Looking at credit card sales, domestic demand showed a barely improving trend with rapid increases of 4.5% in September, 7.7% in October, and 11.5% in November, but uncertainty is expanding again due to recent strengthened quarantine measures.

Prices rose last month (3.7%) due to supply-side factors such as soaring prices of agricultural products and petroleum products, while demand recovered mainly in the service sector.

The Omicron variant virus was cited as a downside factor for not only Korea but the global economy overall. KDI explained, "Global downside pressure on the economy has increased due to supply chain disruptions and the resurgence of COVID-19," adding, "Global industrial production and trade volume are declining, and manufacturing sentiment indices and economic leading indicators are either falling or stagnating."