Continued Dark Economic Outlook... Ministry of Economy and Finance Says "Export Growth Slowing"

The government continues to diagnose the economy as weak. Following last month, it gave a negative assessment that downward pressure on the economy increased in March as well. In particular, it added the expression that the export growth trend is slowing down, showing caution about the increasing downward pressure on the economy.

On the 14th, the Ministry of Economy and Finance stated in the March issue of the "Recent Economic Trends (Green Book)" that "amid delayed recovery in domestic demand such as consumption and construction investment and ongoing employment difficulties centered on vulnerable sectors, expanded domestic and external uncertainties have led to a slowdown in export growth and a contraction in economic sentiment, increasing downward pressure on the economy."

As in the previous month's economic diagnosis, which said, "Downward pressure on the economy is increasing due to economic contraction caused by domestic and external uncertainties," the negative assessment of the economy was maintained, with the addition of the phrase "slowdown in export growth."

Cho Sung-jung, head of the Economic Analysis Division at the Ministry of Economy and Finance, explained, "In January, there was a large negative due to the Lunar New Year holiday, but it turned positive again in February, although the magnitude of the turnaround was not large," adding, "Compared to the sharp export growth last year, the growth rate has slowed down." Exports in January, which included the Lunar New Year holiday, decreased by 10.3% year-on-year, but turned to a 1.0% increase in February. Even considering that last year’s February also had the Lunar New Year holiday, the positive turnaround was not significant.

In particular, the export growth rate of semiconductors, a key domestic export item, turned negative last month for the first time in 16 months. According to the "February Export-Import Trends" announced by the Ministry of Trade, Industry and Energy on the 1st, semiconductor exports amounted to $9.6 billion, down 3% compared to the same month last year.

Semiconductor exports turned positive year-on-year in November 2023 and continued to increase until January, but retreated last month. The record of exports exceeding $10 billion, which lasted from May last year to January this year, also stopped. Cho said, "The semiconductor sector had a significant impact on the export slowdown," adding, "Last year, the Green Book never mentioned the phrase 'export slowdown.'"

Domestic demand is also in a poor state. According to the Ministry of Economy and Finance, department store and large mart sales in February decreased by 10.4% and 16.7%, respectively, compared to the same month last year. The consumer sentiment index for February, announced by the Bank of Korea, recorded 95.2, improving by 4 points from January (91.2), but still below 100. A consumer sentiment index below 100 means consumers view the economic situation negatively. However, Cho explained, "Last year, February was affected by the Lunar New Year holiday," adding, "In January, the positive increase in department stores around the Lunar New Year holiday was reflected, but in February, other sectors such as automobiles showed negative results."

According to Statistics Korea, retail sales, which represent goods consumption, decreased by 0.6% in January compared to the previous month, due to declines in semi-durable goods such as clothing (-2.6%) and non-durable goods such as cosmetics (-0.5%). Retail sales had decreased by 0.7% in both October and November last year, slightly increased by 0.2% in December, and then decreased again.

The evaluation of the employment situation mentioned in January was maintained. The view that employment difficulties centered on vulnerable sectors continue was sustained, as in the previous month. The assessment of the global economic environment was also maintained as before. The Ministry of Economy and Finance diagnosed, "The global economy faces ongoing geopolitical risks, and uncertainties in the trade environment have expanded due to the realization of tariffs imposed by major countries."

It added, "We will promptly implement key policy tasks in the first quarter’s livelihood and economic response plan, including jobs, construction, small business owners, and low-income financial support, and continue to seek additional support measures," and stated, "We will make every effort to respond to uncertainties in the trade environment and support exports, including strengthening support for damages to our companies caused by U.S. tariffs and establishing a fund for advanced strategic industries."