Think tank: Economy still slow

The Korean economy remains sluggish except for the real-estate market, where construction investment continues to increase, a state-run think tank said.

The value of completed construction projects improved significantly compared to a year ago. However, facilities investment, or investment in equipment and machinery, is still stagnant, with exports lagging, the Korea Development Institute (KDI) said Tuesday in its monthly analysis.

“Growth in construction investment continued to run high, leading the upward momentum in overall domestic demand,” the think tank said. “Amid the continued rapid increase in pre-sale housing from last year, the value of construction completed maintained high growth with recent improvements in civil engineering.”

Building construction rose 23.3 percent from the previous July and construction orders grew 44.4 percent, up sharply from last month’s 7.3 percent growth on the rapid rise in civil engineering, according to the KDI.

In fact, August’s pre-construction sales of multifamily housing rose 36.2 percent year-on-year and were up 4.4 percent month-on-month. However, the KDI said that unsold units rose mainly outside the capital.

The think tank also noted that the expiration of extended individual tax cuts on vehicles also affected retail sales and consumption in general.

“With the expiry of the excise tax cut, retail sales moderated, indicating no signs of a spread in the economic recovery,” KDI said. “Retail sales growth moderated on a sharp drop in passenger car sales.”

In fact, retail sales in July rose 4.3 percent year-on-year, down from last month’s 9 percent.

Durable goods such as vehicles advanced merely 0.6 percent, mainly due to sales of passenger cars that fell 11.6 percent compared to the previous year. Sales of semi-goods grew 7.3 percent while non-durable goods grew 5.5 percent.

Facilities investment fell 11.2 percent year-on-year in July, a sharp drop from the 8.2 percent decline in the previous month as transport equipment dropped with the expiration of the individual tax cuts on June 30.

July’s overall industrial output rose 3.2 percent year-on-year, which dropped from 4.8 percent in June.

“The manufacturing capacity utilization rate was low at 73.8 percent, indicating continuing weakness in overall production activities, the KDI said.

The labor market, on the contrary, continued to improve. Data showed that about 298,000 people found new jobs, up 1.1 percent compared to the previous year. Those jobs were mainly in the service industry.

“Services employment growth was maintained, but manufacturing exhibited a sharp drop in the number of employed, weighing down on the overall improvement in employment,” the KDI said.

July’s rate of labor force participation was 62.5 percent, the same as last month, and the employment rate inched up from 60.2 percent in June to a record 60.3 percent in July.

BY KIM YOUNG-NAM [kim.youngnam@joongang.co.kr]