NABO Economic Trends (No. 31)

Published on July 27, 2022
Published by Population & Strategy Analysis Division

■ Economic Trends
   In the Korean economy, despite an increase in exports, import growth has expanded further, recording a trade deficit for three consecutive months, and uncertainties are exacerbating due to global inflation and stronger monetary tightening trends.
   Production in May increased 0.8% MoM and 7.1% YoY, and exports in June rose 5.4% MoM to USD 57.73 billion, mainly in semiconductors, steel and petroleum products, continuing a favorable upward trend. The number of employed persons increased 841,000 in June YoY, indicating that employment is on a solid recovery path as well.
   However, imports in June rose 19.4% YoY to USD 60.02 billion, which was a bigger uptick than exports, resulting in a trade deficit of USD 247 billion for three months in a row. Although the upward trend of energy and raw material prices is slowing, their prices are still very high compared to the previous year, giving rise to trade deficits and inflation. The domestic consumer price index (CPI) in June stood at 6%, the highest since the Asian financial crisis, and the treasury bond (3-year-maturity) interest rate rose to 3.48% and the won/dollar exchange rate to 1,281 won due to domestic and overseas inflation, and strengthening monetary tightening policy. Retail sales in May declined MoM for three consecutive months, and the Composite Consumer Sentiment Index (CCSI) in June, which was 96.4, was below the baseline of 100 for the first time in 16 months, reflecting worsening perceptions of current and future economic conditions. In June, the volatility rate of the nationwide housing sales price index turned downward MoM due to concerns over interest rate hikes and economic recession.

■ Pending Economic Issue: 「Interest rate hikes and household debt trends」
   Due to the global spread of inflation, major countries around the world are continuing to raise benchmark interest rates to stabilize prices. Korea has raised the base rate five times since the second half of 2021, and this has resulted in an upward trend in household and corporate loan rates. On the other hand, slowing growth rates of housing prices and the KOSPI from the second half of 2021, as well as those of related loans (household loans and credit loans), household debts (based on household credit statistics) in the first quarter of 2022 slid for the first time in 9 years. Despite this decline, considering that the household debt-to-GDP ratio remains high at 89.8%, household debt needs to be kept in check.