KDI Shifts Manufacturing Assessment from "Adjustment" to "Weak Trajectory"... While Consumption Improvement Persists

February Issue of "KDI Economic Trends"

Yonhap News Agency

The Korea Development Institute (KDI), a state-run think tank, stated recently that "a modest increase in production is being maintained, mainly in the services sector, as consumption improves." However, it assessed that the manufacturing sector remains on a "weak trajectory."

In the February issue of its report "KDI Economic Trends," released on February 9, KDI summarized, "Although investment is somewhat sluggish, consumption is on an improving trend while exports, led by semiconductors, are showing a modest increase."

KDI noted that construction work volume has seen a partial narrowing of its decline but remains depressed due to sluggish regional real estate markets, and that facility investment continues to fall, thereby still acting as a factor constraining the business cycle.

KDI removed the phrase "economic conditions are improving" starting last month, after having used it consistently from November to December last year. Its description of manufacturing also turned darker, shifting from "adjusted" last month to "weak trajectory" this month. This diagnosis differs somewhat from the government's more optimistic view that the recovery trend has been maintained since November.

KDI said, "Manufacturing production declined slightly, as semiconductors faced some supply constraints despite a surge in demand, while automobiles were somewhat sluggish due to U.S. tariff hikes."

It added, "Although depressed corporate sentiment is partially easing, external risks are somewhat increasing, including the possibility of higher U.S. tariffs and greater volatility in oil prices."

It viewed consumption as continuing its improvement. It assessed that consumption is gradually emerging from its slump thanks to better income conditions and cumulative interest rate cuts, and that consumer sentiment also remains at a high level.

KDI commented, "As income conditions improve mainly due to the upturn in the semiconductor cycle, and as the consumer sentiment index remains at a high level, edging up from 109.8 to 110.8, this suggests that the consumption recovery is likely to continue."

Meanwhile, KDI will announce revised economic forecasts on February 11. In November last year, KDI projected this year's growth rate at 1.8%. Since major domestic and overseas institutions expect Korea's economic growth rate this year to be around 2%, some analysts see a possibility that KDI will also revise its forecast upward.