SEOUL, South Korea – The South Korean economy, while showing signs of growth in its export sector, has been hindered by high-interest rates and a lack of domestic demand, according to a recent report by the Korea Development Institute (KDI).
The KDI’s September economic outlook report, released on September 9, noted that although South Korea’s exports have maintained a strong growth momentum in recent months, the high-interest-rate environment has restricted the recovery of domestic demand, thereby dragging down the overall economic recovery.
The KDI’s assessment differs significantly from that of the government. Since December last year, the KDI has been forecasting a lackluster domestic demand in South Korea, a view that contrasts with the government’s optimistic stance. The Ministry of Economy and Finance has been predicting a recovery in domestic demand since May, driven by a strong export recovery.
The report highlights that despite the robust export performance, retail sales and construction investment have remained weak, and the recovery in domestic demand has yet to materialize. The report also points out that the construction investment leading indicator has continued to decline, suggesting that construction investment and related employment indicators are likely to fall further in the coming period, further limiting the recovery in domestic demand.
Moreover, the report notes a decline in production in the accommodation and catering industry, as well as in the arts, sports, and entertainment-related service sectors. Following the TMON and Wemakeprice payment default incidents, the transaction volume in e-commerce services, mainly driven by electronic shopping vouchers, has decreased.
The KDI’s report underscores the challenges facing the South Korean economy as it grapples with the high-interest-rate environment and a lack of domestic demand. The country’s economy, which has traditionally been export-driven, is now facing the dual challenge of maintaining export growth and stimulating domestic demand.
South Korea’s export sector has been a major driver of economic growth in recent years. However, the high-interest-rate environment has made it difficult for businesses to invest in expansion and has also reduced consumer spending.
The KDI’s report suggests that the government needs to take steps to stimulate domestic demand, which could include measures such as reducing interest rates, increasing public spending, and implementing policies to boost consumer confidence.
In conclusion, while South Korea’s economy has shown signs of recovery in the export sector, the high-interest-rate environment and a lack of domestic demand have posed significant challenges to the overall economic recovery. The KDI’s report highlights the need for the government to take proactive measures to stimulate domestic demand and ensure a sustainable economic recovery.
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