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  • Writer's pictureJ&J Korea

Economic Trends, June 2023

Updated: Sep 5, 2023

Summary and Assessment*

■ The Korean economy remains sluggish, with exports falling sharply, but the steep decline has been somewhat tempered by a moderating slump in domestic demand.

● Due to challenging external conditions, exports continued to decrease sharply, centering on semiconductors. - Manufacturing production and shipments continued to decline, while related business sentiment indices stood at low levels, indicating persistent weakness in economic activity.

● Domestic demand contracted less, led by consumption and construction, although equipment investment growth remains limited. - This slow growth in equipment investment reflects the lackluster activity in the manufacturing market. - Retail sales experienced an easing of contraction led by automobiles, while services production sustained favorable growth backed by increased demand for tour activity. - National Accounts for Q1 indicate a modest recovery in private consumption, with a 0.5% QoQ increase, suggesting a modest recovery from the previous quarter’s contraction (-0.6%).

● Meanwhile, employment conditions remain favorable led by continued high growth in services productions, although the recent economic slowdown is centered on the manufacturing industry.

*All growth figures are on a year-on-year basis unless otherwise noted. This document is an English translation of the original Korean version; the Korean version takes precedence in case of any ambiguities or discrepancies.


■ Economic Activity: The economic downturn continues as manufacturing production contracted, but the pace of slowdown appears to be easing as services production remains strong.

● In March, all-industry production continued on a sluggish trend, registering a mere 2.2% increase, lower than the previous month’s growth (3.3%).

- Industrial production (-13.0% → -8.1%) continued to decline sharply, although there were substantial gains in

- Industrial production (-8.0% → -7.6%) continued to decelerate rapidly, driven by semiconductors (-41.7% → -26.8%), electronic parts (-36.3% → -30.4%), etc., although automobiles (26.4% → 26.8%) sustained a robust upward trend, facilitated by the normalization of auto parts supply.

- Services production (8.0% → 6.2%) sustained robust gains in most categories: accommodation and food services (23.3% → 18.2%) and transport and warehousing (21.2% → 18.2%), etc.

- Construction production (21.7% → 15.4%) continued high growth mainly due to the resumption of delayed construction projects late last year, suggesting that the growth may be just a short-run episode.

● The average capacity utilization rate for manufacturing (68.9% → 72.2%) remained low, while the inventory-to-shipment ratio (122.4% → 117.4%) persisted elevated, signifying continued sluggishness.

- The sluggishness in manufacturing has been partially eased compared to the previous month.

● With exports continuing to decline due to weakening external demand, particularly for semiconductors, the business sentiment index remained low, suggesting a prolonged economic slowdown.

- Both global trade volume and manufacturing PMI have weakened, indicating deteriorating external conditions.

* World Trade Volume Index (%): (Dec. ’22) -2.7 → (Jan. ’23) -1.0 → (Feb.) -2.6

* Global manufacturing PMI: (Jan. ’23) 49.1 → (Feb.) 49.9 → (Mar.) 49.6

- Accordingly, exports continued to stagnate, centering on semiconductors, while the manufacturing BSI on future tendency has stagnated at a low level.

* Exports (%): (Feb. ’23) -7.6 → (Mar.) -13.6 → (Apr.) -14.2

* Semiconductor exports (%): (Feb. ’23) -42.5→ (Mar.) -34.5 → (Apr.) -41.0

* Manufacturing BSI on future tendency (SA): (Feb. ’23) 66 → (Mar.) 65 → (Apr.) 67 → (May) 68

Consumption: Services production sustained solid gains, and the slump in retail sales eased, indicating a potential modest recovery in consumption.

● In March, retail sales growth remained steady at 0.5% compared to the previous month; however, its SA MoM gro wth exhibited a 0.4% increase, suggesting a slight easing of the slowdown.

● Services production (8.0% → 6.2%) maintained strong growth, attributed to an influx of tourists and increased face-to-face activities.

● April’s CCSI was registered at 95.1, up from 92.0 in the previous month.

Equipment Investment: Equipment investment displayed a stagnant trend, with slower growth driven by transportation equipment.

● In March, equipment investment recorded a decreased YoY growth of 2.2% from the previous month (4.2%), and a SA adjusted MoM growth of -2.2%.

● The average capacity utilization rate for manufacturing stood at a low level, and domestic machinery orders experienced a sharp decrease, indicating weak demand for equipment investment.

Construction Investment: A short-term spike in growth was observed due to the resumption of construction projects that were stalled by material supply shortages late last year.

● In March, the value of completed construction (constant) registered a robust increase of 15.4%, following the previous month’s rate of 21.7%.

● However, construction orders received (current) recorded a -44.4% growth, marking the sixth consecutive month of decline.

● There are some positive indicators of a recovery in construction investment, with construction costs exhibiting a slower increase and the construction-related sentiment index persistently improving.


Recent Economic and Labor Market Conditions

■ Despite the recent deceleration in the manufacturing industry, employment levels remain elevated, primarily due to the robust performance of the service industry, which holds a substantial employment share.

● Q1 GDP growth registered a modest 0.8% YoY; however, the addition of 400,000 employed individuals signifies favorable conditions.

- The recent economic slowdown mainly stems from manufacturing weakness (-3.3%), whereas services (3.2%), more closely tied to overall employment conditions, continue to expand at a relatively fast pace.

● Due to differences in economic conditions across industries, male employment slowed rapidly, while female and senior employment continued to grow strongly.

- The slowdown in manufacturing and construction, as well as a decline in delivery demand, contributed to reduced labor demand in sectors that employ more men than women.

- Conversely, due to sustained demand for healthcare and caring work from the COVID-19 crisis and the recovery of face-to-face service businesses, labor demand in sectors employing a significant proportion of women persists in growing.

- At the same time, senior employment continues to increase, particularly in the service sector.


*This article is extracted from Invest KOREA information center, 2023


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