NABO Economic Trends (No. 39)

Published on Oct., 23, 2023
Published by Economic Analysis Coordination Division

■ Economic Trends
   Although the Korean economy has seen a recent easing of its economic slowdown, there are still lingering internal and external uncertainties. These uncertainties include concerns about prolonged monetary tightening in the U.S. and instability in the Middle East.
   Internally, there are positive indicators suggesting an improvement in the economic slowdown, as the rates of decline in manufacturing production and exports are decelerating and the service industry is experiencing continued production growth and employment expansion. However, external uncertainties seem to be escalating as concerns about the prolonged monetary tightening in the US are spreading, and international commodity price volatility is exacerbating due to political instability in the Middle East.
   In August, retail sales decreased by 0.3% MoM for the second consecutive month, however, facility investment and the Value of Construction Completed increased by 3.6% and 4.4% MoM, respectively. In September, exports decreased by 4.4% YoY, but the decline was less significant compared to the drops in July (-16.2%) and August (-8.3%), indicating a gradual easing of the export slump. September imports decreased by 16.5% YoY, continuing a downward trajectory. The September trade balance resulted in a USD 3.7 billion surplus, while consumer prices in September rose by 3.7% YoY. In August, the All Industry Production Index (AIPI) grew by 1.5% YoY and 2.2% MoM: in manufacturing production, the semiconductor and automotive industries experienced increases, while the oil and general machinery industries witnessed decreases, resulting in an overall decline of 0.6%. On the other hand, service industry production continued to rise, with a 1.7% increase, particularly in the finance and insurance industries. In September, the number of employed persons increased by 309,000 YoY to 28.698 million, marking the second consecutive month of an expanding rate of increase, while the unemployment rate decreased by 0.1%p YoY to 2.3%. In the financial markets, treasury bond yields and the won/dollar exchange rate rose due to uncertainties related to the US Federal Reserve's monetary policies and deepening risk aversion. The price of crude oil in September stood at USD 92.2 per barrel, which was up 4.5% YoY and 8.8% MoM, driven by Saudi Arabia's production cut policy.

■ Pending Economic Issue: Total population estimate reflecting recent low fertility rate trends
   Taking into account the ongoing and persistent decline in the fertility rate, estimating the total population while assuming a constant total fertility rate (TFR) of 0.70 indicates a more pronounced rate of decline in the total population. This decline is especially notable among the youth population.
   The National Statistical Office and the United Nations typically adopt the perspective that the Total Fertility Rate (TFR) will rebound after reaching its lowest point and increase in the medium to long term. However, considering recent trends in the number of marriages, intentions to have children, and the average age at which people choose to have children, it appears unlikely that the TFR will rebound. When estimating the total population under the assumption that the TFR will not rebound and remain at 0.70 until 2040, the overall population is projected to decline further. Notably, this decline is expected to be more pronounced in the youth population (ages 0-14) and the infant/preschooler population (ages 0-6) groups. Over the long term, the decline in the working-age population (ages 15-64) and an increase in the elderly population will accelerate in proportion to the duration of low fertility. Consequently, if the pattern of low fertility persists, the working-age population will continue to decline beyond 2040, and the gap between the two demographic groups will widen.