KDI "Increasing Possibility of Economic Slowdown"… High Interest Rates and Weak Exports

KDI Publishes December Economic Trends
September-October 'Recovery Weakening' → November 'Growth Weakening, Possible Economic Slowdown' → December 'Growth Weakening, Increasing Possibility of Economic Slowdown'

[Asia Economy Sejong=Reporter Kim Hyewon] The Korea Development Institute (KDI), a government-funded research institute, has issued a grim diagnosis that the possibility of an economic slowdown in South Korea is increasing. After mentioning the "weakening economic recovery" and then the "weakening and potential slowdown of economic growth" in recent months, KDI has now raised the intensity of its sense of crisis by describing the situation as an "increasing possibility of economic slowdown."

In the "December Economic Trends" report published on the 7th, KDI stated, "With the global economic slowdown making export sluggishness more visible and interest rate hikes continuing, the psychological indices of households and businesses are deteriorating, increasing the likelihood of an economic slowdown in the future."

In the economic trends reports from September to October, KDI described the situation as a "weakening economic recovery," but in November, it omitted the word "recovery" and hinted at the possibility of an economic slowdown. This month, KDI views the possibility of an economic slowdown as even higher. KDI evaluated, "Recently, our economy's growth has weakened due to sluggish exports, and the likelihood of an economic slowdown in the future is increasing."

KDI cited major countries' monetary tightening, China's zero-COVID policy, and the prolonged geopolitical tensions as signs of growing concerns about an economic slowdown. KDI reported, "As economic uncertainty expands, the global leading economic index and business sentiment index continue to decline." It further analyzed, "Exports to China have sharply decreased, and exports are sluggish in most items, especially semiconductors. Along with this, as market interest rates have risen sharply, both consumer and business sentiment have worsened, exerting downward pressure on the economy."

However, KDI noted that while investment sluggishness has somewhat eased, the high growth rate of service sector production, centered on face-to-face industries, continues. KDI stated, "Both facility investment and construction investment have increased significantly, showing a trend of easing sluggishness," and added, "The service sector, especially accommodation and food services, is maintaining a favorable trend with increased production and employment."