The Korea Development Institute (KDI), a national policy research institute, recently diagnosed that the economy is showing a low production growth trend while consumption conditions are improving. Market interest rates have continuously decreased, and the government is distributing 'people's livelihood recovery consumption coupons' worth at least 150,000 won per person to all citizens. KDI forecasts that these coupons will contribute to future consumption recovery.
In the 'Economic Trends August Edition' released on the 7th, KDI noted, "Our country's economy continues to have a low production growth rate mainly due to sluggish construction, but consumption conditions are partially improving." In May, KDI used the term 'economic slowdown' for the first time in over two years, but three months later, they observed that consumption conditions are improving.
In June, total industrial production increased by 0.8% compared to the previous month. The construction sector saw a decline of 12.3%, resulting in a low growth rate. While electronic components (-21.4%) also performed poorly, sectors like semiconductors (16.6%) and metal processing (2.6%) maintained growth. The manufacturing inventory rate decreased from 104.2% in May to 102.6% in June. The average utilization rate rose from 71.4% to 72.4% during the same period.
Domestic demand remained sluggish, centered on construction investment, while exports showed only a moderate growth rate. Construction investment in June decreased by 12.3% from the previous month. Although this was an improvement from May's decline (-19.8%), it remains on a downward trend. Notably, the civil engineering sector was down 17%, showing weak performance focused on general civil engineering.
KDI projected that the sluggishness in construction investment could gradually ease as some leading indicators show improvement. KDI analyzed, "The recovery in construction orders and building starts will gradually be reflected in the future," while also noting that the recovery could be limited due to extended construction periods caused by enhanced safety management on construction sites.
Although consumption continued to show a weak trend, conditions for consumption appear to be improving due to recovery in consumer sentiment. Retail sales managed to increase by only 0.1% due to sluggish performance in sectors excluding passenger cars. However, the consumer sentiment index for July rose to 110.8, surpassing the benchmark (100) following June's reading of 108.7. The household loan interest rate has also continued to decline, recording 4.36% in April, 4.26% in May, and 4.21% in June. KDI stated, "The people's livelihood recovery consumption coupons, which began being distributed last month, are expected to contribute to consumption recovery."
Despite the favorable trends in the semiconductor sector, the increase in facility investment was adjusted due to poor performance in other sectors. The growth rate of facility investment decreased from 6.7% in May to 2.1% in June. Investments related to semiconductor manufacturing equipment (13.3%→14.1%) and precision instruments (8.7%→12.2%) showed a favorable trend. In contrast, investments in electrical and electronic equipment (4.7%→-6.8%), general industrial machinery (-7.9%→-11.8%), and other equipment (-14.1%→-2.0%) were poor.
According to leading indicators, facility investment, focusing on sectors excluding semiconductors, is likely to be adjusted. In July, the import value of semiconductor manufacturing equipment maintained a high growth rate of 27.7%, but imports of transport equipment decreased by 19.6%, and aircraft and parts saw a decline of 63.4%.
Construction investment has somewhat reduced its decline, but it remains sluggish. In June, construction performance (-12.3%) continued to show a significant decrease following the previous month's (-19.8%). KDI noted, "The recovery of construction orders and building starts will gradually be reflected in future construction investment," but they also emphasized that the recovery may be limited due to extended construction periods resulting from enhanced safety management.
In July, exports recorded a growth rate of 5.9%, similar to the previous month's 4.3%. By item, the semiconductor sector (31.6%) continued to show robust growth on a daily average basis. Shipbuilding (107.6%) also significantly increased due to base effects. However, KDI assessed that the strong semiconductor exports reflected preemptive export effects due to concerns over tariff increases. KDI explained, "The current high growth rate may be adjusted in the future." The trade surplus continued, reaching $6.61 billion.
In June, the number of employed individuals decreased to 183,000 from the previous month (245,000). This was mainly due to a loss of 97,000 jobs in the construction sector stemming from sluggish construction activity. The manufacturing sector also shed 83,000 jobs, contributing to the overall decline in employment. The decrease in job-seeking activities among those in their 20s caused the unemployment rate for those aged 15 years and older to drop from 2.7% in May to 2.6% in June, while the economic participation rate fell from 64.7% to 64.5% during the same period.
In July, the consumer price index remained steady at 2.1%, similar to the previous month's 2.2%. The price drop of agricultural products (-1.8%→-0.1%) due to the heat wave was lessened, while petroleum products (-1.0%→0.3%) fell due to base effects. Core inflation remained unchanged, rising by 2.0%.
With trade negotiations between the United States and major countries reaching a conclusion, the financial markets are showing signs of stabilization. In July, the won-dollar exchange rate increased by 2.7%, and the composite stock index rose by 5.7%. The delinquency rate for domestic banks in May rose across all sectors of households and corporations due to persistent domestic sluggishness.