SEOUL– South Korea’s domestic demand has been improving as the country is seeking to return to pre-pandemic normalcy, but its sluggish exports sparked by external risks are feared to weigh down its economy, a state-run think tank said Tuesday.
Amid the country’s eased virus-related regulations, South Korea’s face-to-face service industry sustained a “robust” recovery in August, with the contraction in durable goods sales being eased, the Korea Development Institute (KDI) said in a monthly economic assessment report.
South Korea’s retail sales increased 2.3 percent on-year in August, mainly driven by improved sales of automobiles. The service production also advanced 7.1 percent over the period, it added.
“The Korean economy exhibits partial improvement in domestic demand,” the KDI said. “But its pace of recovery is slowing down on sluggish exports caused by worsening global conditions.”
The KDI noted that the economic recovery is hindered as “poor export performance continues,” led mostly by semiconductors, the mainstay export items for Asia’s No. 4 economy.
“Due to a demand slowdown, the semiconductor industry is rapidly weakening with plunging prices and falling exports,” the KDI said.
South Korea’s exports slipped 20.2 percent on-year in the first 10 days of October to reach US$11.8 billion, according to separate data from the Korea Customs Service, due mainly to sluggish overseas sales of chips.
The country’s outbound shipments of semiconductors fell 20.6 percent on-year in the first 10 days of the month to reach $2.2 billion, the customs agency added.
The South Korean won, meanwhile, has depreciated about 16 percent against the greenback so far this year amid the rising geopolitical risks linked to the ongoing war in Ukraine. A weak currency normally heightens inflation pressure as it makes imports more expensive.
“Despite sagging oil prices, headline inflation stayed high, led by personal service prices,” the KDI said.
“While China’s rebound remains weak and the U.S. becomes more aggressive with the tightening of monetary policy, the downside risks are mounting,” it said.
Source: Yonhap News Agency