South Korea Recovery Pace Slows Down

South Korea’s export-led economic recovery is showing signs of slowing down, as the growth of outbound shipments decelerates, although consumer sentiment is continuing its upward trend, a state-run think tank said Wednesday.

“October posted a sharp contraction in production indicators, but the improvement trend was maintained at a modest pace, given the reduced workdays caused by the long Chuseok holiday. Most production indicators posted negative growth but there was a small increase in average growth for September to October,” the Korea Development Institute said in its monthly evaluation of the country’s economic conditions, Yonhap reported.

“Exports of semiconductors and a few other items maintained favorable growth, but total export growth has moderated somewhat, even when taking into account the impact from the decline in vessel exports,” it said.

The KDI said data regarding domestic demand show a slowdown, but consumer sentiment is on upside trend. Growth in the construction sector is showing signs of deceleration, it said.

“Domestic demand indicators exhibited steep fluctuations on temporary factors, while consumer sentiment trended up. But investment-related indicators showed slowing growth led by the value of construction completed,” it added.

Retail sales and service production gained 4% and 2.5% on-year on average, respectively, in the September-October period, implying that a modest improvement trend was maintained despite the Chuseok holidays, the think tank said.

Facility investment swung to a decrease due to temporary factors, but semiconductor-related leading indicators maintained their upward movement, pointing to the possibility of modest growth in facilities investment, it noted.

Facility investment declined 3.4% in October from a year earlier, sharply down from the previous month’s 24.9% expansion, due to temporary factors such as reduced workdays.

The country’s November outbound shipments grew 9.6%, but exports of a few items, including semiconductors, maintained relatively strong growth, although the growth in total exports seems to have moderated slightly, according to the KDI.

Meanwhile, South Korea expects economic ties with China to gradually improve, which should help sectors of its economy such as tourism and cosmetics that were hit after Seoul deployed a missile defense system, Bloomberg reported.

Better relations with China will help South Korea weather potential rough conditions next year, which may include a slowdown in construction, and support growth at a pace around the government’s forecast of 3%, Vice Finance Minister Ko Hyoung-kwon said during his first interview since his appointment.

“The government isn’t just trying to restore relations with China, but upgrade them to a more sophisticated level of cooperation,” he said.