World Economy

South Korea Recovery Weakening

South Korea Recovery WeakeningSouth Korea Recovery Weakening

A recent string of economic indicators point to the weakening recovery of the South Korean economy, casting doubts over the government’s expectation that this year’s growth rate will reach 3%.

In its monthly economic assessment report released last week, the ministry of strategy and finance said the recovery pace “was not solid”, as an upturn in exports and facility investment was offset by weak industrial output, Yonhap reported.

The cautious assessment followed analysis made earlier by the Korea Development Institute, a state-run think tank, that the recovery momentum of Asia’s fourth-largest economy, which began picking up in the fourth quarter of last year, has recently shown signs of weakening.

It also came two weeks after the government revised up its growth forecast for this year to 3% from the initial target of 2.8%, expecting stimulus effects from an 11 trillion won ($9.6 billion) supplementary budget.

“Given the current recovery trend, the Korean economy is seen to expand 2.8% at best this year,” said Ju Won, an analyst at the Hyundai Research Institute, a private think tank.

According to data from Statistics Korea, industrial output increased 1.5% in June from a year earlier, down from 2.6% in the previous month. Production in the mining and manufacturing sector decreased 0.3% on-year in June, marking the first negative growth in eight months.

Factories across the country ran at an average 71.6% of full capacity in the second quarter, the lowest since the January-March period of 2009, when the factory operation rate remained at 66.5% as Korea struggled with the fallout from a global financial crisis.

On-year increase in construction investment decelerated from 15.1% in May to 6.5% in June. Construction investment, which contributed 1.6 percentage points to the 2.8% growth last year, is expected to be further dampened by measures taken earlier this month to curb rising home prices.

Private consumption, which accounts for about half of the country’s gross domestic product, is expected to remain sluggish in the coming months. Retail sales, a key measure of consumer spending, rose 1% in June from a year earlier, down from 1.5% in May and 2.6% in April.

Mounting household debt, which amounted to 1,360 trillion won as of end-March, will likely be coupled with consumer price hikes and a fall in the value of financial and property assets to further dampen private consumption.

Exports and facility investment have remained bright spots for the economy, but experts warn of a downturn during the rest of the year.

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