A series of unfortunate industrial and economic events at home and abroad are weighing down on the South Korean economy, blasting hopes for recovery in the second half of 2016.
According to a report by LG Economic Research Institute on Tuesday, the South Korean economy is highly likely to suffer sluggish consumption, exports and facility investment for the last four months of the year as the fourth-largest economy in Asia is recently hit by collapse of the country’s largest shipper, recalls of the newest Samsung large-size smartphones and some probability of a US rate hike later this month, Yonhap reported.
“Downward risks including the corporate restructuring moves are growing in the economy,” said Kang Joong-koo, a researcher at the institute. “The restructuring fallout would have greater impact on every corner of the economy in the latter half, which will call for additional policy support.”
Economic indicators in July, which provides a glimpse of economic trends for the rest half of the year, showed weaker performances on-month, according to data by Statistics Korea.
Industrial output shrank 0.1% compared to June, while retail sales slid 2.6%. Facility investments plunged 11.6% during the same period.
“All of these indicators turned out to be poorer than before, which is a clear sign for a stop in the recent recovery trend,” Kang said.
Private consumption is forecast to contract further in the coming months as a cut on individual consumption tax expired in June. After the tax cut end, automobile sales plummeted 11.6% in July from a year earlier. As a result, the growth in total retail sales fell from 9% in June to 4% in July.
‘Black Friday’ Events
Although the government is planning to hold large-scale retail discount events, dubbed “Korea Black Friday” last year, in November, such repetitive event wouldn’t have as much impact as before, the report pointed out.
The country’s exports are still expected to grow slowly after making a turnaround in August after posting declines for 20 months in a row.
Amid the growing uncertainties stemming from slower-than-expected recovery of leading economies like the US and China, global trade volume is estimated to shrink in the second half of the year with falling demand for South Korean export goods, the report showed.
Korea’s ICT exports are predicted to take a serious blow from the battery defect in Samsung Electronics’ newest Galaxy Note 7 as 10 governments around the world recommended their consumers suspend use of the new smartphone.
