KDI: "Construction Sector Remains Sluggish... Consumption Improvement Maintains Moderate Production Growth"

The Korea Development Institute (KDI), a state-run research institute, recently assessed the current state of the Korean economy, stating, "Although the construction sector remains sluggish, moderate growth in production is being maintained due to improved consumption."

In the January issue of its "Economic Trends," released on January 8, KDI diagnosed that the gradual economic recovery, mainly driven by consumption, continues from the previous month. KDI, which had repeatedly mentioned "economic slowdown" and "downside risks" until the first half of last year, noted that since the second half of last year, the recovery in consumption has become increasingly evident.

KDI maintained its assessment that, while it is difficult to say the current economic phase has rebounded sharply, the period of sluggishness has somewhat eased. From a domestic perspective, KDI observed that the trend of consumption improvement is ongoing. In November of last year, both retail sales and service consumption showed moderate increases. While semi-durable goods (-1.5%) and non-durable goods (0.2%) remained weak, retail sales rose, mainly led by durable goods such as passenger cars (5.4%), with durable goods overall increasing by 4.1%.

During the same period, service sector production increased by 3.0% year-on-year, maintaining a relatively solid trend. Most sectors, including wholesale and retail (4.2%), finance and insurance (4.2%), and health and social welfare services (6.2%), showed balanced recovery. KDI commented, "As the service sector generally maintains its recovery, overall industrial production is seeing moderate growth."

In contrast, the continued weakness in the construction sector is still holding back the economy. Construction sector production shrank sharply, falling by 17.0% year-on-year. KDI diagnosed that "construction sector production has remained in a contraction phase for an extended period, and the timing of a recovery in construction investment continues to be delayed."

The Busan New Port, where export and import cargoes are piled high, brightly illuminates the night sky to continue nighttime operations. South Korea surpassed $640 billion in annual exports in 2021, setting a new record high. Since reaching its first $100 million in 1964, it exceeded $10 billion in 1977, $100 billion in 1995, and $600 billion in 2018. This year, surpassing $640 billion marks a new milestone in 66 years of trade history.
Busan ? Photo by Kang Jinhyung aymsdream@

Production in the mining and manufacturing sectors, including manufacturing, also has not escaped an overall sluggish trend. Key industries such as semiconductors (-1.5%), automobiles (-0.2%), chemical products (-5.0%), and primary metals (-6.8%) continued to experience adjustment phases. The average operating rate in manufacturing stood at 70.9%, below last year's average of 72.8%.

Exports, while maintaining growth led by semiconductors, were evaluated as having clear limitations in terms of substance. In December of last year, exports grew by 13.4%, continuing a strong upward trend centered on semiconductors. KDI noted, "However, this high export growth appears to be mainly due to a sharp rise in semiconductor prices, and in terms of volume, the growth trend is gradually moderating."

The export price of semiconductors surged from -6.1% in the second quarter of last year to -2.4% in the third quarter and then to 26.1% in October-November. However, the export volume of semiconductors, which was 23.9% in the second quarter, slowed to 5.2% in October-November. The recovery of exports in items other than semiconductors remains limited. Amid ongoing uncertainty in the global trade environment, the United States' protectionist stance and economic slowdowns in major countries are acting as burdens on trade conditions.