"Economic Vitality Remains Weak"
"Positive Indicators Emerge, Including Improved Consumer Sentiment"
In its "June Economic Trends" report released on June 10, the Korea Development Institute (KDI) diagnosed that "overall economic conditions remain weak." This marks the second consecutive month that KDI has issued a similarly negative assessment, following its use of the term "slowdown" last month for the first time in a year and three months.
In the report, KDI stated, "With the construction sector remaining sluggish and exports also slowing due to increased U.S. tariffs, the overall economy continues to be weak." Last month, KDI noted that "indicators suggesting an economic slowdown are emerging," and this month it has once again delivered a similarly negative evaluation. Kim Jiyeon, KDI's Head of Economic Outlook, commented, "There are no indicators that have deteriorated significantly compared to last month, but the economy continues to lack vitality." She added, "However, there are some positive indicators, such as improvements in sentiment."
Regarding domestic demand, KDI assessed that the slump in the construction sector is continuing. The institute stated, "Weakness in construction investment is constraining the recovery of domestic demand, and the pace of production growth has also weakened, particularly in the construction sector." KDI further noted, "At the same time, exports have slowed, especially in sectors heavily affected by the U.S. tariff hikes, such as automobiles, where exports to the U.S. have declined sharply." In fact, construction completions in April decreased by 20.5%, a larger drop than the previous month's 16.3% decline. Construction completions have now fallen for twelve consecutive months, reflecting a continued contraction.
On exports, KDI diagnosed that the slowdown is concentrated in sectors most affected by the increase in U.S. tariffs. The institute pointed out that exports of automobiles to the U.S. have declined significantly. Specifically, exports of automobiles to the U.S.?which faced a substantial tariff hike?fell by 32%. With additional tariff increases on steel and aluminum taking effect from June 4, export conditions have worsened further. However, regarding semiconductors, KDI stated, "Demand for semiconductors continues to be strong, leading to robust growth in semiconductor production, exports, and related facility investment."
Nevertheless, KDI highlighted the improvement in sentiment indicators. While consumption remains weak, consumer sentiment is showing signs of recovery. The Consumer Sentiment Index for May recovered to 101.8, exceeding the baseline of 100, signaling an easing of the consumption sentiment downturn that had persisted since December of last year. KDI added, "Along with this, the easing of the high interest rate environment may serve as a positive factor for future consumption."
External uncertainty is still assessed to be at a high level. KDI stated, "Although domestic political instability has eased and a U.S.-China trade agreement has been reached, leading to improved corporate sentiment indicators, external uncertainty remains high." The institute added, "Trade uncertainty continues to be elevated due to additional tariff increases on steel and aluminum, as well as renewed concerns over U.S.-China trade tensions."
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