The regional economy of Korea showed a slight deterioration in the first half of this year, particularly in the Honam, Daegu, Gangwon, and Jeju regions. Manufacturing output remained stable in most regions, but the construction sector's poor performance had a significant impact nationwide. However, the regional economy in the second half is expected to improve compared to the first half, aided by the execution of the supplementary budget.
The Bank of Korea noted this in its 'July Regional Economic Report' published on the 28th. The regional economic report is prepared quarterly based on monitoring results from businesses conducted by the 15 regional headquarters under the Bank of Korea and available statistics. The economic conditions by region are categorized into seven levels: ▲significant deterioration ▲deterioration ▲slight deterioration ▲stable ▲slight improvement ▲improvement ▲significant improvement.
Compared to the second half of last year, the metropolitan area, Chungcheong, and southeastern regions maintained stability, while the Daegu, Honam, and Jeju regions were adjusted from stable to slight deterioration. The Gangwon region continued to show slight deterioration.
By industry, manufacturing output remained stable in all regions except for the Daegu and Gangwon regions (slight decrease). The semiconductor sector (Seoul, Chungcheong) continued to perform well due to investment demand driven by artificial intelligence (AI), while hybrid complete vehicles and parts (Chungcheong, Honam) saw increased production due to export expansion. Meanwhile, petroleum refining and chemicals (southeast, Chungcheong, Honam) and steel (southeast, Chungcheong, Honam) decreased.
Domestic demand, including both private consumption and facility investment, remained at the levels of the second half of last year. Private consumption saw sluggishness due to a decline in consumer sentiment amid domestic and external uncertainties in the first quarter, but rebound in consumer sentiment during the second quarter led to stability. However, the Chungcheong and Jeju regions saw slight decreases.
Facility investment, excluding certain industries like semiconductors, remained at the level of the second half of last year due to a conservative investment trend amid increased uncertainties from global trade policy changes. Regionally, the southeastern region saw a slight increase, while Daegu and Gangwon saw slight decreases. The remaining regions maintained stability.
In the first half, the number of employed people (compared to the same period last year) increased significantly in the Chungcheong and Gangwon regions, while the metropolitan area saw a reduced increase. In the southeastern and Daegu regions, the trend shifted from a decrease to an increase, whereas the Honam region noted an expanded decrease. The consumer price index in the first half (compared to the same period last year) showed a slight increase across all regions, primarily driven by industrial products.
In the first half, housing transaction prices fell in all regions except the metropolitan area. The southeastern, Chungcheong, Honam, Daegu, and Jeju regions experienced increased declines, while the Gangwon region reversed to a decline. The metropolitan area maintained an upward trend, though the increase was reduced.
The Bank of Korea said that regarding the future trends of the regional economy, 'In the second half, with the supplementary budget and consumer sentiment improvement policies, we expect slight improvements or stable trends in all regions compared to the first half.'
Specifically, the Bank of Korea stated, 'Future manufacturing output is expected to increase slightly in the southeastern region centered around shipbuilding and machinery, in the Daegu region centered around mobile phones, in the Gangwon region centered around medical devices, and in the Jeju region centered around semiconductors.' Conversely, it expects a slight decrease in the Honam region centered around automobiles and steel.
It added, 'Production in the service sector is expected to increase slightly in most regions, driven by the resolution of political uncertainties and consumer sentiment improvement from policies aimed at invigorating domestic demand.' It also noted that 'production in the construction sector is likely to improve in the metropolitan, Chungcheong, and Gangwon regions due to eased financial conditions, the supplementary budget, and construction revitalization policies.'