"Concerns Over Economic Slowdown Expand"... Government's Economic Diagnosis Grows Darker

Greenbook January Issue Released... "Concerns Over Economic Slowdown Expand"
"Export Decline, Weak Economic Sentiment"...Warning Level Raised

[Asia Economy Sejong=Reporter Lee Jun-hyung] The government has issued a diagnosis expressing concern over the domestic economic slowdown for eight consecutive months. The analysis points to a gloomy outlook for the domestic economy due to persistent high inflation and continued export sluggishness. As the economic slowdown becomes more visible, the government's economic assessment is gradually darkening.

On the 13th, the Ministry of Economy and Finance stated in the ‘Recent Economic Trends (Green Book) for January 2023’ that “Recently, our economy continues to experience high inflation levels,” and “Concerns over economic slowdown are expanding as the pace of domestic demand recovery slows, exports decline, and economic sentiment remains weak.” The Ministry has issued the same diagnosis of ‘economic slowdown’ for eight consecutive months since first mentioning it in the Green Book released in June last year.

The government’s economic diagnosis has darkened sharply over the past one to two months. Initially, in the November Green Book last year, the Ministry described the domestic economy as showing a ‘gradual improvement trend,’ but in the reports from last month and this month, it analyzed that the ‘recovery pace has slowed.’ Additionally, after first mentioning ‘export sluggishness’ in November last year, the same expression has been used for three consecutive months. Last month, the Ministry raised the warning level by diagnosing economic sentiment as ‘weak.’

Trade Deficit for 9 Consecutive Months

The government’s darkening diagnosis is due to clear signs of economic slowdown in the statistics. Exports, which play a key role in supporting the Korean economy, are a representative example. Last month, exports amounted to $54.99 billion, down 9.5% compared to the same month last year. In particular, exports to China, the largest trading partner, plunged by 27%. Due to export sluggishness, the trade balance recorded a deficit of $4.69 billion last month. The trade balance has been in deficit for nine consecutive months.

The domestic demand situation is similar. Retail sales in November last year decreased by 1.8% compared to the previous month and fell by 2.2% compared to the same month last year. Service production, which reflects consumption in services such as dining out, decreased by 0.6% in November last year compared to the previous month. The consumer sentiment index last month was 89.9, remaining below 100 since June last year. A consumer sentiment index below 100 indicates poor consumer confidence.

Although the inflation rate has slowed, it remains at a high level. Last month’s inflation rate was 5%, maintaining the same level as November last year (5%). Inflation has slowed since October last year (5.7%). However, the core inflation rate, which reflects the overall trend of prices, rose 4.5% compared to the same month last year. The living cost index, which shows perceived inflation, also recorded a 5.7% increase.

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho is delivering opening remarks at the Emergency Economic Ministers' Meeting held at the Government Seoul Office in Jongno-gu, Seoul, on the 12th. Photo by Kang Jin-hyung aymsdream@

"Downside Risks Persist"

Given this situation, economic sentiment is also freezing up. The economic sentiment index fell by 2.6 points in November last year compared to the previous month. The business survey index (BSI) for all industries last month was 74, marking the lowest level since October 2020 (74). A BSI below 100 means more companies view business conditions negatively.

Concerns about external uncertainties are also growing. The Ministry of Economy and Finance analyzed in the Green Book that “Externally, uncertainties remain regarding the pace of monetary tightening and China’s quarantine situation,” and “Downside risks to the global economy persist due to major countries’ growth slowdown and the direction of the Russia-Ukraine war.” It added, “We will make every effort to enhance economic vitality such as exports and investment and manage domestic and external risks,” and “We will also accelerate efforts to improve the economic structure through the three major reforms.”