The Korea Development Institute (KDI), a national policy research institution, has warned of downside risks to the economy for four consecutive months. In its 'April KDI Economic Trends' published on the 7th, KDI diagnosed that "external conditions have rapidly deteriorated, increasing downward pressure on the economy."
In January of this year, KDI diagnosed it as "increased downside risks," in February as "heightened downside risks," and in March and April as "expanded downward pressure."
In last month's economic trends, KDI noted that "the expanded downside risks to the economy were due to sluggish construction and worsened export conditions," while analyzing that "manufacturing production is maintaining an upward trend." However, this month, KDI viewed manufacturing production pessimistically. This is because the average utilization rate in February recorded 73.1%, showing a decline compared to the previous month (73.5%).
KDI evaluated that this month, "as the increase in domestic and external demand is slowing down, production is decelerating, and with worsened international trade conditions, the pressures for export and economic downturn have expanded."
KDI also focused on the sluggish construction investment this month. In February, the value of construction permits decreased by 21% compared to the same month last year. The sluggishness in the institutional sector of construction was pronounced, continuing a significant decline following the previous month (-27.4%). However, KDI stated that "if the improvements in leading indicators are gradually reflected in the future, there is a possibility that construction investment conditions may improve somewhat."
The 'consumption of goods,' which is one pillar of domestic demand, showed a weak trend, constraining domestic recovery. Retail sales in February decreased by 2.3% compared to a year ago. The consumer sentiment index in March (93.4) also remained below the benchmark (100), staying at a low level.
The other pillar of domestic demand, facility investment, continued to show a favorable trend centered on semiconductors, but downside risks expanded. Facility investment in February increased by 7.7% year-on-year. The robust investment in semiconductors and the increase in working days had an impact. KDI projected that "due to worsened export conditions like the increase in tariffs from the United States, there is a possibility that future facility investments may be constrained."
A slowdown has also appeared in exports, which led economic growth last year. In the first quarter of this year, exports decreased by 2.1% compared to the same period last year, showing a slowdown trend. In particular, the growth rate of ICT exports (compared to the same period last year) recorded 38.5% in the third quarter of last year and 27.5% in the fourth quarter of last year, but it significantly reduced to 6.1% in the first quarter of this year.
As external conditions worsened, such as U.S. President Donald Trump's tariff policies, corporate sentiment among export corporations has also contracted. The business survey index (BSI) for export corporations and domestic corporations in March stayed below 100. The BSI reflects the economic conditions felt by corporations, meaning that if it is below 100, it indicates that more corporations expect economic deterioration than those that anticipate improvement. KDI noted that "if the U.S. tariff increases are fully implemented in April, corporate sentiment could further contract."
Meanwhile, while the credit market has maintained stability, the volatility in financial markets has increased. This was due to concerns over U.S. trade policies, leading to a rise in exchange rates and a drop in stock prices. In March, the won-dollar exchange rate increased by 0.6% compared to the end of the previous month, recording 1,472.9 won, and the composite stock price index fell by 2.0%, recording 2,481.