Government Maintains Diagnosis of 'Signs of Domestic Demand Recovery'... Prices Show 'Stable Trend'

‘Recent Economic Trends’ July Issue
"Signs of Domestic Demand Recovery Strengthen, Expanding Economic Recovery Momentum"

The government has maintained its assessment for three consecutive months that signs of domestic demand recovery are emerging, indicating an expanding trend of economic recovery. It also evaluated that inflation is showing a stable trend.

Citizens shopping at a large supermarket in Seoul on the 4th Photo by Yonhap News

In the July issue of the ‘Recent Economic Trends (Greenbook)’ released on the 12th, the Ministry of Economy and Finance stated, “Recently, our economy is showing a gradually expanding recovery trend as signs of domestic demand recovery join the stable inflation trend and the favorable conditions in manufacturing and exports.” The government began mentioning signs of domestic demand recovery starting in May.

The government has maintained its judgment for three months that signs of domestic demand recovery are strengthening this month as well. This contrasts with the assessment by the state-run Korea Development Institute (KDI) on the 8th in its ‘July Economic Trends,’ which evaluated that “economic improvement is weak” and diagnosed that domestic demand is struggling to recover due to high interest rates. KDI assessed that the economic recovery trend is weak because retail sales, facility investment, and construction investment, which support domestic demand, were all sluggish.

Kim Gwi-beom, head of economic analysis at the Ministry of Economy and Finance, explained, “It is true that the industrial activity trend indicators were adjusted in May, but since they were flat in April, looking at both months together, we expect a positive figure in June.” He added, “Considering indicators such as the number of inbound travelers and card sales, it was deemed reasonable to maintain the current judgment.” Kim also explained, “The consumer sentiment index has surpassed 100, and corporate sentiment is also improving.” The consumer sentiment index in June recorded 100.9.

The number of Chinese tourists visiting Korea last month increased by 1,079,000 compared to the previous year. The Ministry of Economy and Finance explained that although the increase was slightly smaller than in April (2.26 million increase) and May (1.7 million increase), the large scale of inbound travelers is interpreted as a positive factor for domestic demand recovery.

Retail sales, which indicate goods consumption, decreased by 2.2% in April compared to the same month last year, and the decline widened to -3.1% in May. Among service production closely related to consumption, wholesale and retail trade (-1.4%) and accommodation and food services (-0.9%) also continued to decline in May. Kim said, “The government is not evaluating that domestic demand has recovered, but rather that signs of recovery are being observed.” He added, “Looking at preliminary card sales data, expectations for domestic demand recovery are clearly increasing compared to the first half of the year.”

The favorable export trend continues. Exports have increased for nine consecutive months from November last year to last month. June exports recorded $57.07 billion, a 5.1% increase compared to the same month last year. Exports in the first half of the year reached $334.8 billion, approaching an all-time high. In May, industrial production in mining, manufacturing, and electricity and gas sectors decreased by 1.2% compared to the previous month.

The government stated, “We will swiftly implement key policy tasks for the second half of the year’s economic policy direction, including the rapid establishment of a price stabilization stance, customized support for small business owners, and strengthening domestic demand to stabilize people’s livelihoods.” It added, “We will simultaneously promote a dynamic economic roadmap to improve the quality of life for citizens and strengthen the sustainability of our economy.”