NABO Economic Trends & Issues June Edition (Issue No. 80)

Published on 21 June 2019
Published by Macro-Economic Analysis Division of the Economic Analysis Bureau

 I. Economic Trends
 Although the Korean economy has recently witnessed a higher increase in employment as employment in the services sector increased, there are signs of a continued recession such as a decrease in exports and a contraction in domestic demand. Consumer prices remain low due to the reduced price of services, and the aggravated US-China trade dispute as well as increased uncertainty in the financial market have contributed to the sudden increase in the won-to-dollar exchange rate.

 Ⅱ. Study on the Correlation between Commodities and Stock Market Returns
 Commodity prices, which have been on a steady increase since 2016, recently reversed course in 2018 due to increased uncertainty brought on by the US-China trade dispute and the unstable financial markets, but are exhibiting signs of a rebound since the beginning of 2019. In Korea, primarily a commodities importer, commodity price increases lead to weakened corporate profitability due to the burden of raw material prices, which again is reflected in stock prices, exerting a negative impact. Against this background, this study was conducted to analyze the dynamic correlation between the returns of stock price indices and commodities. As a result, in 2018, the correlation between the returns of the KOSPI index and commodities as well as the correlation between the returns of the S&P 500 index and commodities was found to exhibit generally similar trends. However, the US-China trade dispute and the unstable financial markets since mid-2018 appear to have produced a different trend vis-a-vis the two pairs.

 Ⅲ. Trends and Implications of the Construction Industry Overseas
 The volume of overseas orders that Korean construction companies received in 2018 totaled 32.1 billion dollars, which is up 10.7% from the previous year but merely half the orders received during 2013-2014. The traditional order base for Korean construction companies is focused on orders from the Middle East and centered on industrial facilities, resulting in exposure to economic volatility including oil price drops; and while the proportion of investment-to-develop projects is increasing mainly in emerging markets due to reduced fiscal burdens within the client countries, Korean companies are losing competitiveness as the overseas construction orders they receive are biased toward sub-contractor projects. While Korean construction companies have been concentrating on development projects mainly involving construction, efforts must be made to develop the industry into a knowledge-concentrated industry by expanding investments in high value-added construction engineering areas involving planning, feasibility, project management and preliminary design.