The Korea Development Institute (KDI) has removed references to downside risks related to the Middle East conflict from its recent assessment of the South Korean economy.
The institute observed that manufacturing production, including semiconductors, is undergoing a volume-based adjustment, while the service sector continues to show strength.
In its July issue of the KDI Economic Trends report released today (July 8), the KDI stated, "The Korean economy is maintaining a moderate recovery trend, supported by semiconductor exports and a robust service sector, despite adjustments in manufacturing production."
The phrase "downside risks to the economy due to the Middle East war," which was included in last month's report, was omitted from this month's assessment.
The KDI noted that while external risks have eased somewhat following the start of ceasefire negotiations between the United States and Iran in mid-June, uncertainty regarding a final agreement remains.
The KDI assessed that exports have continued to show high growth, led by ICT items such as semiconductors, driven by solid demand related to AI, and that semiconductor-related investment is also maintaining a positive trend.
However, it noted that the growth in semiconductor export volume has undergone an adjustment.
This means that in terms of export value, the upward trend remains strong due to rising prices.
In May, all-industry production increased by 2.3% compared to the same month last year, a level similar to the previous month (2.4%).
Service sector production grew by 4.9%, with growth expanding primarily in the financial and insurance sectors (10.4%) and professional, scientific, and technical service sectors (17.5%), supporting the overall growth in all-industry production.
The KDI explained that service sectors closely linked to domestic demand also improved, with the wholesale and retail sector (3.0%) maintaining a solid growth trend and the accommodation and restaurant sector (2.2%) seeing a reduction in its sluggishness.
On the other hand, mining and manufacturing production shifted to a decline of 0.9%, as the growth rate for semiconductors slowed from 13.3% to 1.5%, and automobile production decreased (-5.2%) due to supply disruptions caused by a fire at a parts supplier.
Sluggishness continued in petroleum refining (-14.7%) and chemical products (-2.8%) due to crude oil supply issues.
The KDI stated, "Manufacturing production decreased slightly as the high growth rate of semiconductors was adjusted and other sectors showed weak trends."
It assessed that consumption continues to show a moderate recovery despite internal and external downside factors.
The retail sales index in May increased by 1.7%, maintaining a growth trend similar to the previous month despite weakness in durable goods.
The KDI's assessment is that while facility investment has continued to show high growth, centered on semiconductor-related investment, other sectors remain weak.
The KDI stated, "The labor market appears to be slowing, particularly in the manufacturing sector," and added, "Consumer prices are maintaining a high level due to the impact of high oil prices."
It projected that despite the decline in international oil prices, the impact of the high exchange rate that persisted for some time may have a delayed effect, meaning the slowdown in the consumer price inflation rate could be gradual.
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