NABO Economic Trends (No. 35)

Published on Feb., 20, 2023
Published by Population & Strategy Analysis Division

■ Economic Trends
   Concerns about an economic downtrend are growing in the Korean economy as the pace of price hikes continue and pessimistic consumer sentiment remains amid a widening decline in production, investment and exports. Yet, financial markets show signs of stability.
   As for domestic demand, December retail sales increased for the first time in four months, however, consumer sentiment remained sour, falling below the baseline. Investment was sluggish as both facilities and construction decreased. January exports fell 16.6% YoY, declining for four consecutive months, while imports shrank 2.6% YoY. The trade balance continued to be in deficit (for 11 consecutive months) and widened to USD12.69 billion, while consumer prices rose 5.2%, continuing their upward trend.
   Index of All Industry Production (IAIP) is on a sharper downward slope. As of December, manufacturing production decreased YoY and MoM, while service production increased YoY, but decreased MoM. Although the number of employed persons increased by 411,000 YoY, mainly in the service industry and the elderly, the rate of increase slowed for the eighth consecutive month. Job openings or unmet labor demand continued to rise YoY as well, albeit its pace of increase slowed.
   On the other hand, in the financial market in January, treasury bond yields fell by 0.4%p MoM due to the possibility of the central banks of major countries, such as the US Federal Reserve, adjusting the pace of interest rate hikes amid concerns over economic slowing; and the won/dollar exchange rate also dropped by 3.0%, demonstrating market stability, in relation to the lessened preference for the dollar as a safe asset due to the easing of external uncertainties and the adjustment of the value of the dollar caused by the narrowing interest rate gap between the US and major countries.

■ Pending Economic Issue 「Characteristics and Assessment of Imports and Exports in 2022」
   In the first half of 2022, despite posting a trade deficit of USD10.3 billion, the robustness of foreign trade was maintained thanks to uptrending exports. However, exports sharply decreased in the second half of last year, with an annual trade deficit coming in at USD47.2 billion. This is attributable to the global economic slowdown caused by global economic uncertainties and prolonged downward economic pressure, and it adversely affected semiconductor exports, in particular, which had been driving brisk exports in the Korean economy. In the midst of changes in the foreign trade environment, such as the rise of protectionism and trade security coupled with the global economic slowdown, the Korean economy faces challenges that need to be addressed as a small, open economy with a high dependence on exports, including trade paths and supply chain diversification.