Economy is ‘subdued,’ says KDI

A state-owned think tank maintained a gloomy assessment of the economy, describing the situation as “subdued” for the fourth consecutive month as the country experiences a drop in investment and exports.

“The Korean economy is exhibiting a slightly improved situation in consumption but investment and exports have contracted, indicating that economic activities remain subdued,” said the Korea Development Institute (KDI) in a monthly report Sunday.

The report comes after government agencies reported that exports last month slumped 13.5 percent from a year earlier, the sharpest decline in over three years, while facilities investment in May fell 11.5 percent on year.

The government has acknowledged the concerns and recently lowered its gross domestic product (GDP) growth target to 2.4 to 2.5 percent from an earlier forecast of 2.6 to 2.7 percent.

Finance Minister Hong Nam-ki promised last week to spend 70 percent of the government’s 6.7 trillion won ($5.7 billion) supplementary budget within the first two months of its passage by the National Assembly.

The KDI explained in its latest report that investments and exports fell due to a slump in the semiconductor industry.

Semiconductors, the country’s largest export category, experienced a drop of 25.5 percent in exports last month from a year earlier, as semiconductor-related facilities investment declined in May.

“Special industrial machinery - which reflects investment in semiconductor-related equipment - recorded a 35.3 percent growth [on year in May],” said the KDI. “June’s imports of semiconductor manufacturing equipment recorded a 47.1 percent growth.”

The think tank also remained cautious about rising figures in the labor market as 259,000 jobs were created in May compared to the previous year.

While the figure was an improvement from April numbers of an increase of 171,000, the KDI explained that the hiring was led by the government.

“The number of employed persons continues to rise at a fast pace owing to the government’s job creation projects,” said the report.

Private think tank Hyundai Research Institute also expressed worries over the economy in the second half of the year.

“The room for improvement in the country’s recent economic trend is slim,” said the think tank in a report on Friday. It said the average operations rate for the manufacturing sector has been on a downward trend since 2010.

BY CHAE YUN-HWAN [chae.yunhwan@joongang.co.kr]