KDI "Economic Slump Eases Thanks to Semiconductors... External Uncertainties Remain"

Korea Development Institute (KDI) October Economic Trends Announcement

Although Korea's economic downturn is gradually easing, centered on semiconductors, a national policy research institute has diagnosed that external uncertainties persist due to rising international oil prices.

The Korea Development Institute (KDI) stated in its October economic trends report released on the 11th, "Recently, our economy is showing some recovery in semiconductor production, easing the manufacturing sector's slump, but external uncertainties remain as the US maintains its monetary tightening stance." KDI analyzed that expectations of prolonged US monetary tightening have led to rising domestic market interest rates, acting as a burden on the economy, and that the increase in consumer prices is expanding due to rising international oil prices.

In the economic trends report from last September, KDI emphasized concerns about economic uncertainty, stating, "Our economy is showing some easing of export sluggishness, but external uncertainties are increasing." Although the current evaluation still mentions "external uncertainties," it highlights the recovery trend by using the expression "economic downturn is gradually easing." This is a re-use of the assessment from August, which emphasized the recovery trend by stating "the economic downturn is gradually easing."

KDI observed increasing signals indicating easing of the slump, such as a significant reduction in the decline of manufacturing production. It also noted that construction costs have increased and construction projects have resumed, maintaining a high growth rate. In August, overall industrial production shifted from a 1.5% decrease in the previous month to a 1.5% increase. Additionally, "the average operating rate in manufacturing rose sharply from 70% in the previous month to 73.4%, suggesting an easing of the manufacturing slump." The semiconductor export volume index also increased from 4.0% in July to 22.4% in August. However, due to the prolonged US tightening stance and rising oil prices, external uncertainties have expanded, causing manufacturing business sentiment to weaken.

Retail sales in August (-4.8%) showed an increased decline due to reduced real income, high inflation, and high interest rates, indicating that goods consumption continues to be sluggish. Investment conditions have been constrained by prolonged high interest rates and expanding external uncertainties, leading to a continued sluggish trend in facility investment. Facility investment in August recorded a sharp decline of -14.9%, down from -11.2% in the previous month. The decline widened mainly in machinery (-11.8% → -17.3%) and special industrial machinery (-20.5% → -32.0%).

Construction performance showed a high growth rate of 12.3%, higher than the previous month's 10.5%, indicating strong growth in indicators, but leading indicators related to housing continue to show weakness. Housing permits (-89.4%) decreased sharply, and housing starts (-69.6%) also showed significant weakness, especially in apartments.