The Korea Development Institute (KDI), a national research institution, recently assessed that although the sluggish construction industry and external uncertainties persist in Korea's economy, the recovery of consumption is providing some buffer.
In the 'September Economic Outlook' published on the 9th, KDI evaluated that 'while the sluggishness in construction investment continues and manufacturing operating rates remain low, the expansion of consumption is somewhat alleviating the overall economic downturn.' This analysis goes a step further from the previous month's expression of 'improvement in consumption conditions,' indicating that the increase in consumption is cushioning the economic downturn.
According to the report, retail sales in July expanded from a 0.3% increase in the previous month to a 2.4% increase, primarily driven by robust passenger car sales. The production in the accommodation and food service sectors also rebounded from -2.7% to 1.6%, showing an improvement in service consumption. The 25.5% increase in foreign tourists and a 33.1% increase in travel revenue were also cited as factors boosting consumption.
KDI noted, 'With the continuation of declining interest rates and government consumption support policies, there is a high possibility that the recovery in consumption will be maintained,' citing the high level of the consumer sentiment index of 111.4 in August.
However, external conditions were still identified as risk factors. KDI pointed out, 'The continuation of high U.S. tariffs and increased global trade uncertainty exert strong downward pressure on exports.' The uncertainty over the imposition of semiconductor tariffs and the timing of reductions in automobile tariffs also remain variables.
In the production sector, it was explained that the average manufacturing operating rate of 72.4% in July continued to stagnate, falling below last year's annual average of 72.7%. Construction investment is also likely to see a delayed recovery due to stronger regulations on real estate project financing (PF) and a slowdown in the local economy.
Facility investment turned to a decline of -5.4% in July. Considering the reduced growth rate in the import of semiconductor manufacturing equipment, a phase of investment adjustment may continue for the time being.