South Korea’s Domestic Demand Slumps as Exports Show Resilience, Says KDISouth Korea Plans to Dissolve Kaesong Industrial Complex Support Foundation

SEOUL - The Korea Development Institute (KDI), a premier state-run think tank, reported on Sunday that South Korea is witnessing a persistent downturn in domestic demand, even as a rebound in exports helps counterbalance the economic deceleration.

According to Yonhap News Agency, the nation's internal consumption and investment continue to be hampered by high interest rates, despite a temporary boost in the construction sector and a steady increase in exports.

The report highlights a mixed economic picture, where retail sales, an indicator of consumer spending, slightly improved by 0.8 percent month-on-month in January but fell by 3.4 percent compared to the previous year, marking the seventh month of consecutive decline. Facility investment saw an annual increase of 4.1 percent, attributed mainly to temporary factors such as base effects and additional working days, but experienced a 5.6 percent drop when adjusted for seasonality.

The KDI pointed to ongoing risks in domestic demand, noting high delinquency rates on household and business loans, and rising prices for certain goods like agricultural products due to supply-side challenges. Conversely, the export sector has demonstrated resilience, driven by robust demand for semiconductors and contributing to a fifth consecutive month of growth in February after a year-long slump.

Global economic and trade concerns appear to be diminishing, providing a favorable backdrop for South Korean exports, the institute observed. However, inflation remains a concern, with supply-side pressures pushing consumer prices up 3.1 percent in February, influenced by the cost of farm produce and global oil prices. Although underlying inflation is showing signs of easing, consumer price growth is expected to slow down more gradually than previously anticipated, reaching the government's target of 2 percent towards the end of 2024. The finance ministry has projected a 2.6 percent increase in consumer prices for the current year.

SEOUL - The South Korean government is poised to approve a measure for the dissolution of the support foundation for the Kaesong Industrial Complex, a once-thriving symbol of inter-Korean cooperation located in North Korea's border city of Kaesong, as early as next week.

According to Yonhap News Agency, a proposal to revise the decree related to the support for the industrial complex will be discussed at a Cabinet meeting scheduled for Tuesday, with the intention to transfer the foundation's responsibilities to the private sector.

Established in 2007 to facilitate the operations of the Kaesong factory park, the foundation's activities have largely ceased since 2016. The South Korean government decided to close the complex in response to North Korea's nuclear testing and a long-range missile launch, significantly impacting the foundation's role and operations.

The forthcoming proposal, if passed, is expected to be implemented within a week, assigning the South-North Korea Exchanges and Cooperation Support Association to inherit the duties previously undertaken by the foundation. An official from the ministry underscored that this move to dismantle the foundation would not affect Seoul's ongoing considerations for legal action against North Korea's unauthorized activities in the complex. The government is exploring a damages lawsuit in response to the North's continued illicit operation of the facility.

The Kaesong Industrial Complex was once hailed as a concrete example of economic collaboration between the two Koreas, hosting over 120 South Korean companies and employing tens of thousands of North Korean workers to produce various goods. However, relations between the South and North have deteriorated, highlighted by North Korea's destruction of the joint liaison office within the complex in 2020, following South Korea's inability to prevent the distribution of anti-Pyongyang propaganda by North Korean defectors.

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