KDI: "Rapid Deterioration in External Conditions...Signs of Economic Slowdown"

KDI Economic Trends (May Issue)

The Korea Development Institute (KDI), a government-funded research institute, has diagnosed that indicators suggesting an economic slowdown are emerging in the Korean economy. The institute continued its negative outlook, noting that both exports and domestic demand are deteriorating amid worsening trade conditions.

In its "KDI Economic Outlook (May Issue)" released on May 12, KDI stated, "Recently, external conditions for the Korean economy have deteriorated rapidly." This diagnosis follows the use of the strong expression "rapid deterioration" regarding external conditions for the first time last month, and the institute has maintained its negative economic outlook this month as well. Since using the phrase "increased downside risk to the economy" for the first time in two years in its January report, KDI has continued for five consecutive months to describe the situation as "expanding downside pressure on the economy."

KDI assessed, "While sluggishness in the construction sector is constraining domestic demand recovery, exports are also slowing due to worsening trade conditions."

Total industrial production in March increased by 1.3%, continuing a similar trend to the previous month (1.2%). The continued downturn in construction production, which recorded -20.2% in the previous month and -14.7% in March, contributed to this sluggishness. Exports are also showing signs of slowdown due to the impact of U.S. tariff increases.

Exports in April (3.7%) improved slightly compared to March (3.0%), but based on average daily export value excluding the effect of the number of working days, exports recorded minus 0.6%, lower than the previous month’s 5.3%. In particular, the negative impact of U.S. tariff increases has become increasingly apparent. By country, average daily exports to countries excluding the United States increased by 1.9%, but exports to the United States fell sharply by -10.6%. KDI stated, "As the impact of U.S. tariff increases becomes more visible, exports are showing signs of slowdown."

KDI forecasted "the possibility of expanding downside pressure on the economy, centered on exports, due to global economic slowdown resulting from worsening trade conditions." The institute analyzed, "Growth forecasts for the global economy, particularly for the United States and China, have been significantly revised downward, and volatility in international financial markets has increased, leading to weakened economic sentiment both domestically and internationally."

The sluggish trend in consumption is also continuing. Passenger car sales, which decreased by 7.3% last year, maintained strong growth in March following the reduction of individual consumption tax in January and February, resulting in a 1.5% increase in retail sales compared to the previous month’s -1.8%. However, retail sales excluding passenger cars increased by only 0.5%, and on a quarterly basis, retail sales in the first quarter decreased by 1.0% compared to the same period last year. The Consumer Sentiment Index in April (93.8) rose slightly from the previous month (93.4), but still remained below the baseline of 100.

Facility investment maintained a favorable trend, mainly in semiconductors, but downside risks to facility investment persist due to high external uncertainty. Construction completions continued to show significant declines, with a drop of -20.2% in February and -14.7% in March, indicating ongoing sluggishness.

The slowdown in employment also continued. The increase in the number of employed persons in March (183,000) improved slightly compared to the previous month (136,000), but the decline in employment in the manufacturing and construction sectors persisted. While the employment rate remained stagnant, the unemployment rate, especially among young people, showed an upward trend.