An analysis said Korea's economy is improving, led by semiconductors. However, it also said higher prices stemming from high oil prices and a strong dollar could lead to interest rate hikes, which may slow the pace of recovery in consumption.
Korea Development Institute (KDI) on the 8th, in its July economic trends, said it maintained a modest improvement thanks to strong semiconductor exports and services, but noted there is also a risk that consumption growth could be constrained by the impact of high oil prices and a strong dollar.
KDI assessed exports, facility investment, and domestic demand positively. Exports in June rose 70.9% from a year earlier to $102.25 billion, the highest on record. KDI said, Exports continued to post strong growth, led by semiconductors on the back of solid AI-related demand, and semiconductor-related investment also maintained a favorable trend.
The overall consumer sentiment index in June was 106.6, up 0.5 points from 106.1 in the previous month. When the consumer sentiment index exceeds 100, it means more people expect their living conditions, the economy, and income to improve. KDI said, Consumption appears to be continuing a modest improvement despite domestic and external downside factors.
However, it expressed concern about the effects of high oil prices and a strong dollar. KDI said, The impact of high oil prices and a strong won-dollar exchange rate is sustaining inflationary pressure, which in turn leads to a burden of raising the base rate, leaving a risk that the consumption recovery ahead could be constrained.
It also said the labor market is slowing, centered on manufacturing. The number of employed in manufacturing in May fell by 140,000 from a year earlier, a sharp increase in the decline compared with the same period last year (55,000). KDI said, As the decrease in manufacturing employment widens, both the employment rate and the labor force participation rate are falling, particularly among young people.