Government: "Economic Recovery Trend Gradually Expanding"... Brighter Economic Outlook

Ministry of Economy and Finance Publishes May Economic Trends

The government has assessed that the economic recovery trend is gradually expanding as signs of domestic demand recovery join the export boom. In response to criticisms that it is difficult to feel the economic recovery due to prolonged high interest rates despite improvements in various economic indicators, the government reiterated its focus on stabilizing prices quickly and spreading warmth in domestic demand to stabilize people’s livelihoods.

In the May issue of the 'Recent Economic Trends (Green Book)' published on the 17th, the Ministry of Economy and Finance diagnosed the recent Korean economic situation as follows: "While the inflation rate has somewhat slowed amid a fluctuating trend, the economic recovery trend is gradually expanding as signs of domestic demand recovery, such as an increase in inbound tourists and improvements in the service sector, join the export boom centered on manufacturing."

The export recovery trend, centered on semiconductors, continued clearly. In April, exports reached $56.26 billion (about 78 trillion won), up 13.8% year-on-year due to the dual expansion of semiconductor and automobile exports. This marks seven consecutive months of positive growth since October last year. Among the 15 major export items, including semiconductors and automobiles, 13 showed improved performance compared to last year. All four major IT items?semiconductors, displays, computers, and wireless communication devices?recorded positive growth for two consecutive months.

What the government focused on was the recent domestic demand recovery. The government had maintained a judgment of 'consumption slowdown' from January to March this year. Then, in April, it diagnosed 'slowdown in goods consumption,' excluding the service sector from the slowdown area. In May, it expressed more clearly its expectations for domestic demand recovery by stating that "signs of domestic demand recovery, such as an increase in inbound tourists and improvements in the service sector, have joined."

Retail sales in March, which show trends in goods consumption, increased by 3.0% for durable goods and 2.4% for non-durable goods, rising 1.6% month-on-month (0.9% year-on-year). The Ministry of Economy and Finance forecasted, "April retail sales will be positively influenced by card approval amounts and the increase in inbound tourists."

However, this optimistic view of the domestic sector contrasts with forecasts from research institutions. The day before, the Korea Development Institute (KDI) stated in its 'Economic Outlook for the First Half of 2024' that "the economic recovery driven by export expansion has not reached domestic demand," and predicted that "private consumption this year will increase by only 1.8%, similar to last year, due to the impact of high interest rates."

The government also saw the inflation slowdown trend resuming. Last month, the consumer price index was 2.9%, falling into the 2% range for the first time in three months since January (2.8%). The rate of increase also narrowed compared to the previous month (3.1%). Favorable weather conditions led to good vegetable harvests, and the government's expansion of tariff quota items allowed cheaper imported fruits to enter, significantly curbing the rise in agricultural product prices. Petroleum prices rose slightly to 1.3% compared to 1.2% a year ago, reflecting the international oil price increase with a time lag. However, the inflation slowdown trend in dining out and non-dining-out services continued, dropping from 3.1% year-on-year to 2.8%.

There is an analysis that the government’s brighter economic outlook is valid given that international oil prices have fallen and are stabilizing. Professor Kang Sung-jin of Korea University’s Department of Economics evaluated, "When establishing this year’s economic policy direction, the government based its oil price forecast on $81 per barrel (Dubai crude). Currently, oil prices have stabilized around $80, which is a controllable level for the government."

The government stated that it will ensure that improvements in economic indicators lead to a felt economic recovery. The Ministry of Economy and Finance emphasized, "While prioritizing the stabilization of people’s livelihoods through a quick establishment of a price stabilization stance and the spread of warmth in domestic demand, we will simultaneously carry out thorough management of latent risks and efforts to enhance the dynamism of our economy."