KDI: "Economic Downturn Slightly Eases, Led by Consumption"

September Edition of Economic Trends

The Korea Development Institute (KDI), a government-funded research institute, stated in the September edition of its "Economic Trends" report released on September 9, that the domestic economy is "showing signs of a slight easing in the economic downturn, mainly driven by consumption." This assessment is more positive than the previous August report, which noted that "consumption conditions are partially improving."

Yonhap News Agency

KDI explained, "Consumption conditions are gradually improving, as the decline in market interest rates continues and the growth rate of gross national income (year-on-year) expanded to 1.5% in the second quarter." The institute added, "Since July, the government has implemented consumption support policies such as issuing livelihood recovery consumption coupons and launching a home appliance rebate program, which have helped ease sluggish consumption."

In fact, retail sales in July rose by 2.4% compared to the same month last year, indicating a recovery in goods consumption, while service consumption, including accommodation and food services (up 1.6%), also showed improvement. The reduction in individual consumption tax led to a strong increase in passenger car sales (up 12.9%), and even excluding passenger cars, retail sales rebounded by 1.3%. The consumer sentiment index in August remained high at 111.4, reflecting improved consumption conditions. KDI added, "As the government's consumption support policies continue, the trend of consumption improvement is likely to be sustained."

However, there are still clear factors constraining the recovery. KDI noted, "Construction investment and the persistently high level of trade uncertainty remain as risks." While total industrial production in July increased by 1.9% year-on-year, construction sector output continued to decline sharply at -14.2%, and facility investment also entered a correction phase with a -5.4% change.

KDI further analyzed, "The growth rate of imports of semiconductor manufacturing equipment in August narrowed from 27.7% to 9.5%, and imports of aircraft and parts continued to decline at -43.8%." The institute stated, "Leading indicators suggest that the adjustment in facility investment is likely to continue."

Exports maintained an upward trend, but uncertainty remains high. The export growth rate in August was 1.3%, slowing from 5.8% in the previous month, and on a daily average basis, the increase was a modest 5.8%. However, exports to the United States declined by 8.1%, due to decreases in steel (-32.1%) and automobiles and parts (-6.1%). KDI assessed, "Despite the conclusion of mutual tariff negotiations, uncertainties in the trade environment persist due to announced tariffs on semiconductors and pharmaceuticals, as well as the U.S. Federal Appellate Court's ruling on tariff illegality. Thus, downward pressure on exports remains high."