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Korea’s economy is slowing, warns OECD

Aug 13,2018
The Korean economy will slow down in the near future.

According to the statistics released by the Organization for Economic Cooperation and Development on Sunday, the composite leading indicator, or CLI, for Korea fell 0.3 points from a month earlier to 99.2 in June. That is a warning sign that the Korean economy will worsen in six to nine months time, as the country suffers from declining domestic consumption and shrinking investments.

The CLI predicts the future direction of an economy. The index is focused on turning points - peaks and troughs - and the patterns in the indices are likely to be followed in the business cycle with a six- to nine-month time lag.

The index fluctuates around 100. Figures above 100 means the economy is expanding and vice versa. What matters most is the trend.

The problem lies in the fact that the index for Korea has been on a downward spiral for 15 months in a row since April 2017 after peaking at 100.98 in March 2017. The last time Korea posted a lengthier decline was between Sept. 1999 and April 2001, which was 20 months. That was when the country was still going through the Asian financial crisis.

The size of monthly declines has been enlarging, too. The CLI, which declined around 0.1 point each month until February, broke the 100 mark and started declining by 0.2 points. June saw a decline of as much as 0.3 points from May.

The index examines six statistics from the Bank of Korea and the National Statistical Office including manufacturing outlook, the Kospi, stocks of manufactured investment goods, the inventory circulation indicator in manufacturing, spread of interest rates and net barter terms of trade.

Figures from Statistics Korea also indicate trouble for the Korean economy.

Both the coincident composite index, an indicator of the current economic situation, and the leading composite index, which predicts the economy in the future, fell in June. The former slipped 0.2 points in June, falling for the first time in six months, while the latter dropped in February and March, froze in May and slid 0.1 point in June.

Despite the signs, the government is still reluctant to admit the economy is weakening.

“When the leading composite index declines for six straight months, we can officially confirm the economy is in a bad situation but it stayed flat in May,” said an official with the Finance Ministry.

BY SEO JI-EUN [seo.jieun@joongang.co.kr]


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