Stimulus intended to help soothe ailing economy

Korea’s economy is showing few signs of recovery but continues to be weighed down by tough external conditions that are leading to a sharp drop in its exports, a report said yesterday.

As expanding global uncertainties continue to raise the risk of affecting both the nation’s export and domestic economic growth, the Korean government is planning to announce additional measures to cushion the situation today.

The estimated fiscal stimulus is estimated to be roughly 2 trillion won ($1.7 billion).

The report by the Korea Development Institute (KDI) also noted external uncertainties were spreading amid a rise in global oil prices and slowing growth of major markets, such as the United States and China.

“The country’s economy is showing signs of improvement on local consumption amid continued shrinking of exports due to worsening global economic conditions,” the report said.
The monthly report is based on a string of indicators that include industrial output, consumer prices and employment rates.

Korea’s exports fell 6.2 percent from a year earlier in August with total outbound shipments in the January-August period shrinking 1.5 percent on-year, the Ministry of Knowledge Economy said earlier.

Such a drop in overseas demand for Korean goods is hurting the country’s trade-dependent manufacturers, the KDI report said.

In August, the operation rate of the country’s manufacturing companies came to 77.2 percent, down 0.9 percentage points from the previous month when exports dropped 8.8 percent from the same month in 2011.

But more concerning is the contracting domestic market. The domestic market, which slightly recovered in July, has shrunk again last month. While department store sales contracted for three consecutive months, sales at major discount stores for the first time continued to fall in the last five months.

Department stores’ on-year sales in August fell 6 percent while sales of major discount stores retreated 3.5 percent in the same month compared to a year ago. Even credit card spending on-year growth has fallen to single digits, at 8 percent. This is a first since October 2009 which saw a 9.4 percent on-year growth when the local economy was still suffering from the 2008 global crisis, the Ministry of Strategy and Finance said.

Automobile sales, a key indicator in assessing the domestic economy’s situation, fell almost 25 percent on-year last month, only selling 86,000 units in the local market. This was the smallest number of cars sold in the local market since January 2009 when the auto industry was able to sell 73,000 units.

Concerned over the shrinking growth, the government is gearing up to announce a stronger fiscal measure targeted at stimulating the economy. In June the government announced its plan to release 8.5 trillion won of funding to be used to boost the economy. Details will be released today.

The KDI, however, said the country’s economy was also showing some signs of recovery, noting output by the service industry grew 0.7 percent from a year earlier in August, a turnaround from a loss of 0.2 percent the previous month.

By Lee Ho-jeong, Yonhap [ojlee82@joongang.co.kr]