The Korea Development Institute (KDI) announced that signals of a slowdown in our economy have been detected. Just last month, it diagnosed that downward pressure on the economy was expanding, but this time it changed its assessment to outright slowdown. This is attributed to the worsening trade conditions due to the tariff war initiated by the Trump administration.
In its publication 'May Economic Trends' released on the 12th, KDI analyzed, "The growth rates of production and domestic demand are at a low level, and daily average exports are decreasing due to worsening trade conditions." KDI releases economic trends every month and had previously diagnosed that downward pressure on the economy expanded from January to April this year. The analysis pointed out that the growth rate of demand has shrunk, and as production has also stalled, the economy is expected to gradually settle down.
The decrease in exports due to mutual tariffs imposed by the Trump administration was realized last month. The export growth rate for April was 3.7% compared to the same month last year, showing a slight increase from the previous month. However, when excluding the effects of working days, the daily average is 0.6% lower compared to March (5.3%). The daily average export growth rate, excluding information and communication technology (ICT) items, continued to decline, with -2.5% in February, -0.7% in March, and -2.7% in April.
Exports to the United States have decreased, and the negative impact of the tariff increase has become apparent. Daily average exports to countries excluding the United States increased by 1.9% compared to a year ago, while exports to the United States decreased by 10.6% during the same period. Exports of automobiles and steel to the U.S., where tariff rates were significantly increased, fell by 20.7% and 11.6%, respectively.
KDI noted that as trade conditions worsen, indicators suggesting an economic slowdown are increasing and that, despite improvements in the mining and manufacturing sectors, the growth rate of production remains low, especially in the construction sector. In March, overall industrial production was at 1.3%, similar to the previous month's rate of 1.2%. Although production growth rates improved in the mining sector and in semiconductors and electronic components, sluggish performance in construction production continues to be an issue. The increase in construction production for March was -14.7%, continuing the negative growth following the previous month's rate of -20.4%.
Domestic recovery remains distant. KDI stated, "Signs of easing consumer sluggishness have emerged, but a severe decline in construction investment has constrained domestic recovery," adding that the effects of the U.S. tariff increase are gradually reflecting in exports.
Retail sales increased, primarily due to the reduction of the special consumption tax on passenger cars, but service consumption still lags. In examining the production of major service industries, accommodation and food services saw a decrease of 3.7% compared to the same month last year, while educational services decreased by 1.3% and arts, sports, and leisure services dropped by 0.7%. The consumer sentiment index for April was 93.8, which is a slight increase from the previous month's 93.4, but still below the benchmark level of 100.
KDI diagnosed that while the flow of investment in semiconductors is favorable, significant external uncertainty poses downside risks. In March, facility investment increased by 14.1% compared to the same month last year. This is a higher growth rate compared to the -4.9% in March of last year. However, the business survey index (BSI) for manufacturing facility investment in May released by the Bank of Korea last month is at 90, which is below the long-term average of 95. KDI explained, "The uncertainty surrounding trade remains high, potentially constraining improvements in facility investment going forward."
Employment conditions showed a declining trend, especially in construction and manufacturing sectors. In March, the number of employed persons recorded an increase of 193,000, widening from the previous month's increase of 136,000. However, there were decreases of 185,000 in construction and 112,000 in manufacturing. While the employment rate has stagnated, the unemployment rate for young people (aged 15-29) rose from 6.3% in February to 6.6% in March. The consumer price index for April remains unchanged at 2.1% from the previous month.
The International Monetary Fund (IMF) suggested a global economic growth forecast of 3.3% in January, but downgraded it to 2.8% in April. For the United States, this figure was lowered from 2.7% in January to 1.8% in April, and for China, it was adjusted from 4.6% to 4.0% during the same period.
KDI stated, "The global economy is expected to significantly slow down due to the deterioration of the global trade environment and a decline in economic sentiment," and added that, "The increase in goods trade is shrinking, and the indices related to manufacturing and consumer sentiment are still showing sluggish trends, thus expanding the possibility of a global economic slowdown."