[Weekly Review] Even Trusted Exports Slow Down... Expected Inflation Hits a 10-Year High

Electricity and Gas Rates Increase from This Month... 40% of Moon's Job Projects Deemed 'Ineligible'

[Asia Economy Sejong=Reporter Kwon Haeyoung] The trade deficit in the first half of this year reached $10.3 billion, marking the largest scale ever recorded for the first half of a year. Concerns about an economic recession are growing as not only energy imports increase but also the export growth rate, the main growth engine, slows down. The expected inflation rate, which is the consumer price inflation rate anticipated by consumers for the next year, surged by 0.6 percentage points in just one month, approaching the 4% range. Meanwhile, electricity and gas rates, which had been suppressed from rising until now, will increase simultaneously starting this month. About 40% of the job projects that the Moon Jae-in administration invested 35 trillion won in last year were judged as 'ineligible' due to poor performance, signaling that the Yoon Suk-yeol administration's job project policies will be fully implemented.

◆ First half trade deficit of $10.3 billion, largest ever... Export growth rate also slows down＝According to the Ministry of Trade, Industry and Energy on the 2nd, the trade balance recorded a deficit of $2.47 billion last month. Imports last month were $60.2 billion, up 19.4% compared to the same period last year, while exports increased by only 5.4% to $57.73 billion. This marks the first time since the global financial crisis from June to September 2008 that the trade balance has recorded a deficit for three consecutive months (April to June this year). As a result, the cumulative trade deficit for this year reached a record high of $10.3 billion. The unprecedented scale of the trade deficit is due to the sharp rise in global energy prices, which significantly increased import amounts. Energy imports in the first half of this year amounted to $87.9 billion, nearly double the $46.9 billion recorded in the same period last year.

Exports last month increased by 5.4% compared to a year ago, with the growth rate falling to single digits for the first time in 16 months. The export growth rate had declined in March (18.8%) and April (12.9%), then briefly rebounded in May (21.3%), largely due to two additional working days compared to the previous year. The slowdown in exports is interpreted as a sign that the global economy is retreating. As exports, the main growth engine of the Korean economy that relies on trade, cool down, concerns about a domestic economic recession are accelerating.

◆ Electricity and gas rates increase simultaneously from the 1st of this month＝Starting this month, electricity and gas rates will increase simultaneously. The government and Korea Electric Power Corporation raised electricity rates by 5 won per kWh from the 1st. A household of four using 350 kWh per month will have to pay about 1,535 won more. Due to soaring international energy prices for crude oil, gas, and coal used to generate electricity, the maximum adjustment range for fuel cost adjustment was raised from 3 won to 5 won, resulting in a 5 won increase in electricity rates.

Residential (housing and general use) city gas rates will also increase by 1.11 won per MJ. With this increase, residential gas rates will rise from 15.88 won per MJ to 16.99 won, a 7% increase, and general use gas rates will increase from 7.2% to 7.7%. The Ministry of Industry expects the average monthly gas bill per household in Seoul to increase by 2,220 won, from 31,760 won to 33,980 won.

Considering the electricity and gas rate increases this month and the scheduled increases in October, electricity rates will rise by 9% and city gas rates by 9.9% in the second half of the year. This is analyzed to push consumer prices up by 0.14 percentage points and 0.13 percentage points respectively, raising the total by 0.27%.

An electricity meter is installed at a multi-family house in Seoul on the 27th, when the fuel cost adjustment unit price for electricity bills in the third quarter is scheduled to be announced. Photo by Jinhyung Kang aymsdream@

◆ Expected inflation at 3.9%... Highest in 10 years and 2 months＝According to the Bank of Korea's 'June Consumer Sentiment Survey Results,' the expected inflation rate this month rose by 0.6 percentage points from the previous month to 3.9%, marking the highest level in 10 years and 2 months since April 2012 (3.9%). The expected inflation rate has been rising for six consecutive months since January (2.6%). After entering the 3% range in April (3.1%) and rising to 3.3% in May, it surged to nearly 4%. Notably, the 0.6 percentage point increase is the largest since related statistics began in 2008. The price perception index, which reflects consumers' judgment of the inflation rate over the past year, also rose by 0.6 percentage points from the previous month, showing the largest increase ever recorded.

The interest rate level outlook index (149) also rose by 3 points from the previous month, breaking records. This is interpreted as reaching an all-time high due to the rapid pace of interest rate hikes in the United States and the anticipated additional base rate hikes domestically.

◆ 40% of Moon Jae-in administration's job projects deemed 'ineligible'＝About 40% of the job projects promoted by the Moon Jae-in administration were judged as 'ineligible' due to poor performance. According to the Ministry of Employment and Labor's 'Evaluation and Improvement Plan for Financially Supported Job Projects,' the ministry graded 169 out of 228 job projects implemented last year, with 19 rated excellent, 80 good, 38 needing improvement, and 32 reduced in budget. The proportion of projects rated as needing improvement or budget reduction, indicating ineligibility, was 41.4%, a significant increase from 34.4% last year.

The Yoon Suk-yeol administration plans to reduce the budget for 32 projects with low job creation effects and abolish projects such as smart dam safety management, which was promoted as part of the Green New Deal under the previous government, and special employment promotion subsidies introduced during the COVID-19 outbreak. With the increase in the proportion of projects needing improvement or budget reduction in the first financial support job project evaluation conducted since the launch of the Yoon administration, it is analyzed that the Yoon Suk-yeol administration's job project policies will be actively pursued.