S. Korea Weak Demand Hampering Economy

The South Korean economy is experiencing a feeble recovery as brisk exports and investment were offset by flaccid private consumption and weak service sector growth, a government report said Tuesday.

“On the back of an upturn in global trade, upbeat exports and investment pushed up the South Korean economy to a large extent, while domestic demand remained weak due to sluggish private consumption and service sector output,” the finance ministry said in its monthly economy assessment report called the “Green Book”, Yonhap reported.

The report is based on the latest economic indicators of such key factors as output, exports, consumption and corporate investment, which could provide clues as to how the economy has been fairing in recent months.

Exports rose for eight months in a row through June to spearhead the recent upside cycle of Asia’s fourth-largest economy thanks to stellar overseas sales of chips and petrochemical products, marking the longest winning streak since 2011.

Facility investment turned around to move up 1.8% in May from a month earlier on increased demand for semiconductor equipment and machinery, while industrial output also rebounded to climb 0.2% on-month in May.

However, such gains were offset by a 0.9% on-month drop in retail sales and a 0.3% fall in service production in May as people are still reluctant to spend money.

The finance ministry said that external downside pressures, including geopolitical risks centered on North Korea and a potential rate hike by the United States, will weigh on the South Korean economy in the coming months, despite a positive sign in consumer sentiment, which hit a more-than six year high of 111.1 in June.

Production in the mining and manufacturing industries rose 0.2% in May on a monthly basis, but the services industry production dipped 0.3%.

Construction investment shed 1.6% in May from a month ago, while car sales in the local market tumbled 14.8% in June compared with a year earlier.

The number of Chinese tourists visiting South Korea posted a double-digit decline since March, dealing a blow to the tourism industry and duty-free shop operators.