NABO Economic Trends (No. 38)

Published on 23 August, 2023
Published by Economic Analysis Coordination Division

■ Economic Trends
   While Korea has experienced some relief from its economic downturn, the ongoing slowdown continues due to escalating domestic and international uncertainties.
   Domestically, several indicators have shown positive signs, including continued deceleration of the inflation rate, an increase in semiconductor exports, and a steady employmentrate. Yet, the uncertainties are observed to be mounting internationally, driven by factors including the unfolding real estate market crisis in China, a consistent drop in trade volume, concerns over further interest rate hikes in the U.S., and increased price volatility of crude oil and other international raw materials.
   Korea’s domestic consumption has been growing for two consecutive months, with retail sales in June reflecting a 1.0% growth MoM. Facility investment showed a rise of 0.2% MoM, while construction completions shifted direction, recording a 2.5% decline MoM. Exports have decreased for ten consecutive months, totaling at USD 50.33 billion, which marks a 16.5% decrease YoY. Imports were valued at USD 48.71 billion, indicating a 25.4% reduction YoY, resulting in a total trade balance of USD 1.63 billion by July this year.
   Consumer prices continued their upward trajectory with a 2.3% increase YoY, but the rate of this increase is slowing. On a YoY basis, production in the manufacturing industry decreased, while there was an upswing in the service industry. July’s exports from 11 major industries revealed a decline both YoY and MoM, yet the service industry output showed a rising trend. The employment growth rate has been slowing down, reaching its lowest in 29 months at 28.686 million. The population experienced a continued decline, with a reduction of 187,000 individuals (-0.36%) year-over-year.
   Regarding the financial markets, both domestic and international uncertainties have shown modest easing. As of July’s end, the 3-year national bond yield had an uptick of 0.02%p MoM, settling at 3.68%. The Won/Dollar exchange rate was determined at KRW 1,280, reflecting a 2.50% reduction MoM. Excluding natural gas, all energy prices increased both YoY and MoM. The real estate market, previously in decline at -0.05%, transitioned to a growth of 0.03%, influenced by market recovery hopes. From January to June, the cumulative total fiscal income receded by KRW 38.1 trillion (-11.4%) YoY, and the cumulative total fiscal expenditure also reduced by KRW 57.7 trillion (-14.1%) YoY.

■ Pending Economic Issue 「Characteristics of Recent Current Balance and Future Prospect」
   In the first half of 2023, the current balance registered a modest surplus of USD 24.4 billion. However, despite facing challenges in the preceding year, there has been a gradual improvement in the current balance. The goods balance, often the major contributor to the current balance surplus, recorded a deficit in the first half. The service balance, which has been in a consistent deficit, saw its shortfall expand. The primary income account has grown significantly due to the influx of dividends from overseas corporations. While the goods balance is expected to experience a positive shift in the second half of 2023 bolstered by favorable export conditions, uncertainties such as potential deceleration in China’s economic growth, setbacks in semiconductor industry recovery, and the rise of international oil prices remain present. The service balance might witness some improvements based on the recovery of the tourism balance. The primary income account is forecast to persist in its surplus trend, influenced by the rapid growth in foreign direct investment.