Korea Development Institute (KDI) recently assessed the Korean economy as showing "a continued low pace of production growth due to a contraction in the construction industry, but signs of easing weakness in consumption."
KDI, in its Oct. 16 publication of the "October economic trends," diagnosed that the recent Korean economy is seeing prolonged weakness in the construction industry restraining growth in all-industry production, with employment also slowing mainly in construction. Even so, it said, "As passenger car retail sales continue to post strong growth, automobile production is increasing and manufacturing indicators have improved," adding, "Other retail sales are also seeing gradual easing of weakness due to the downward trend in market interest rates and government support policies."
It cited the deterioration of global trade conditions as a factor of economic uncertainty. This is because trade uncertainty is expanding, with trade tensions between the United States and China reigniting recently.
All-industry production in August fell 0.3% from a year earlier. Despite improvements in mining and manufacturing, the slump in construction deepened and the growth of services became somewhat more moderate, leading to a decline after one month. The direct impact came from the widening of the construction industry production decline rate from 14% to 17.9%.
However, as the special consumption tax cut boosted demand for automobiles, automobile production and shipments increased sharply. As a result, the manufacturing inventory ratio fell from 101.8% to 100.7%, and the average operation rate rose from 72.5% to 74.7%.
Demand for automobiles also led to improvements in consumption indicators. Passenger car sales in August rose 13.6% from a year earlier. However, retail sales excluding passenger cars fell 2.0%. KDI said, "With the payment of people's livelihood recovery consumption coupons in July and the launch of new mobile phones, retail sales in August were adjusted," while noting, "The modest improvement trend in seasonally adjusted retail sales is being maintained." Production in accommodation and food services, which is closely related to consumption, also increased 1.1% month-over-month on a seasonally adjusted basis, following the previous month.
Facility investment continued a weak trend. Investment was strong in semiconductors, but transport equipment fell sharply.
Construction investment continued a weak trend. Construction completed in August fell 17.9%. Even on a seasonally adjusted basis, it was down 6.1% from the previous month. KDI said, "Although improvement in building orders is continuing, the weakness in construction investment is becoming prolonged as it is not sufficiently leading to groundbreaking," adding, "Due to stricter screening of real estate project financing loans and a slowdown in regional real estate markets, the gap between building orders and groundbreaking has widened this year."
Due to changes in the trade landscape, the growth in exports is showing signs of a modest slowdown. KDI assessed that "global trade uncertainty remains elevated due to China's export controls on rare earths and the United States' notice of additional tariff hikes on China."