Economy’s momentum may be fading, says KDI

The state-run Korea Development Institute warned Tuesday that the economic momentum felt since the last three months of 2016 could run out of steam.

In its latest assessment of the economy, the KDI said exports and investments continue to expand thanks to a recovery of the global economy.

The International Monetary Fund (IMF) kept its global economic growth forecast released late last month at 3.5 percent, the same as a forecast made in April, citing improvement in the Chinese economy. While its July forecast for the U.S. was lowered 0.2 percentage points to 2.1 percent for from April’s 2.1 percent, due to lack of expansion in government spending and uncertainties, it raised China’s outlook 0.1 percentage point from April’s 6.6 percent to 6.7 percent.

But in its report this month, the KDI stressed a weakening output from the manufacturing and mining industries.

It said because of such a trend, the overall economy is weakening. Last month’s report pointed out weakening in the domestic economy due to tepid consumer spending.

In June, production in manufacturing and mining industry dropped 0.2 percent, which was a turnaround from a 0.2 percent increase in May. The average operating rate of plants in manufacturing fell 0.3 percentage points from May’s 71.6 percent to 71.3 percent.

Another area of concern is the job market.

The report noted that while hiring in manufacturing and construction increased, services was a drop from 375,000 new jobs in May compared to year ago to 301,000 in June. The number of unemployed in June grew 65,000 compared to a year ago to reach nearly 1.07 million. As a result the unemployment rate has gone up 0.2 percentage points to 3.8 percent.

“The government, the BOK and the KDI jointly share the view that, while not strong, the economic recovery is continuing,” said Joo Hwan-wook, the Finance Ministry’s director of economic analysis.

Meanwhile, tightening measures that the government announced earlier this month to curb a partially overheated real estate market are a cause for concern in the second half.

The government said the impact of the measures on the construction industry this year will be limited because the planning of apartment buildings takes a few years.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]