iM Securities: Possibility of May Marking the Bottom of the Domestic Economic Cycle Rises

[Asia Economy, reporter Yoo Hyunseok] In May, major domestic economic indicators all showed a sluggish trend. However, iM Securities analyzed that this could mark the bottom of the economic cycle. The semiconductor industry is performing more robustly than expected, and the effects of the new government’s policies, along with a recovery in consumer sentiment, are projected to serve as drivers for an economic rebound in the second half of the year.

Park Sanghyun, a researcher at iM Securities, stated in a report on July 1, "Key economic indicators in May were generally weak," adding, "Depending on the recovery of the semiconductor industry and the effects of government policies, May could potentially be the bottom for the domestic economy."

Retail sales, a gauge of consumer demand, remained flat in May after declining for two consecutive months compared to the previous month. Mining and manufacturing production decreased by 2.9%, following a 0.6% drop in April, marking two consecutive months of decline. The pharmaceutical and automobile sectors showed particularly pronounced weakness. In the case of the automobile industry, both the imposition of high tariffs by the United States and a contraction in domestic demand were identified as independent contributing factors.

Investment indicators showed a similar trend. Construction completed fell by 3.9% from the previous month and by 20.8% from a year earlier, marking a third consecutive month of decline. Construction orders also decreased for two consecutive months, raising the possibility of a slowdown in construction investment going forward.

Park Sanghyun, the iM Securities researcher, assessed, "The real GDP growth rate in the second quarter may also remain stagnant, following negative growth in the first quarter."

However, the semiconductor industry was singled out as the only source of relief. Park explained, "The shipment-inventory cycle is maintaining a solid trend, and inventory adjustment is proceeding faster than expected," adding, "If global demand rebounds, the domestic semiconductor industry could recover beyond expectations."

He also projected that May could represent the bottom of the domestic economic cycle. He emphasized, "Since the launch of the new government, consumer sentiment has been improving, and the large-scale supplementary budget currently being promoted by the government could serve as a catalyst for a recovery in consumption in the second half of the year." He further noted, "The 'Livelihood Recovery Consumption Coupon' for all citizens (ranging from 150,000 to 520,000 won per person) could be distributed as early as July, making it highly likely that consumer momentum will strengthen in the mid-to-late third quarter."

Additionally, export conditions could gradually improve depending on progress in tariff negotiations with the United States. Furthermore, a recovery in global IT demand, driven by AI investment, could also provide a foundation for a rebound in the manufacturing sector. Park stated, "There is still downward pressure according to the indicators," but added, "Given the improvement in government policies and external conditions, it is necessary to consider the possibility that May was the bottom for the domestic economy."