KDI changes economic forecast to slow growth

The Korea Development Institute (KDI) has stepped back from its warning last month that the Korean economy could nosedive.

On Wednesday the state-run economic think tank said that although it believes the Korean economy will to continue to struggle with slow growth, the possibility of additional deceleration is low as several indicators, including service sector production and investment in the construction industry, are improving.

In its previous reports in February and March, the KDI expressed concerns about the country’s economic growth for the second month in a row. But the new report says, “Growth has slowed gradually, but the economy is less likely to witness further weakness.”

In the latest report, the KDI said the overall industrial production for February recorded 2.4 percent year-on-year growth, up from 1.7 percent the previous month. Mining and service production increased, while the manufacturing sector weakened.

“The composite consumer sentiment index rose to 100 in March from 98 in the previous month, indicating a moderating contraction in consumption sentiment,” the KDI said.

Services production maintained an upward momentum, but its growth rate decreased to 2.6 percent in February from 3 percent the previous month.

“The growth rate in real estate activities, renting and leasing has slowed fast and certain sectors closely related to private consumption, such as wholesale and retail trade, showed relative sluggishness,” KDI said.

Investment in the construction sector has been strong overall, but facility investment has declined.

Construction investment rose 9.8 percent year-on-year in February, while facility investment fell 7.5 percent. Investment in machinery and transportation fell 12.8 percent and 7.6 percent, respectively.

“The manufacturing industry’s capacity utilization rate was 73.5 percent in February, which is still very low and the slow pace will continue for a while,” the KDI added.

Retail sales in February improved slightly, the report said.

Non-durable and semi-durable goods expanded by 2.1 percent each from the previous year, while durable goods rose 5.8 percent as sales of passenger cars increased.

“Retail sales growth rate has slowed down, but it appears that private consumption is improving,” KDI said.

Exports fell to 8.2 percent last month, lower than 12.2 percent in February. “Wireless telecommunication and semiconductor products did very well last month but those of ship and oil-related products weakened significantly,” KDI said. “Although the decrease in exports eased, a near-term recovery is hard to expect for now due to the slowing growth of the global economy.”

The report showed that the labor market is still very weak. A total of 223,000 people got new jobs in February, up 0.9 percent from the previous year. However, the growth rate has fallen from 1.4 percent in January. Some 48 percent of the newly hired employees got a job in the manufacturing sector.

“The nominal regular wage in a workplace of more than five full-time employees rose 4.2 percent in January, sustaining the relatively high growth in recent months,” KDI said.

In February, the seasonally-adjusted unemployment rate rose 0.6 percentage points to 4.1 percent from the previous month.

March’s CPI inflation advanced 1 percent, down from 1.3 percent in the previous month, which was influenced by the increased decline in petroleum product prices.

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