Economic Indicators Continue to Fall

The second quarter (from April to June) of this year saw the largest decrease in construction investment after 1998.

The governmental research institution Korea Development Institute (KDI) forecasted that such stagnant construction investment was highly likely to keep the economy slowing down.

According to a report on economy trends announced by the KDI yesterday, domestic construction investment decreased in the second quarter this year by 3.9 percent compared to the first quarter (from January to March).

Such a construction investment decrease rate marks the highest over the eight years and three months after the first quarter of 1998, when 8.85 percent of the decrease rate was seen.

A stagnant construction business in the first half (from January to June) resulted mainly from a decrease of public construction orders.

Construction companies’ revenue earned from private construction orders is higher in the first half of this year than in the same period of the previous year; however, revenue from public construction orders decreased in the first quarter and in the second quarter by 10 percent and 4.4 percent in each.

Accordingly, construction companies experienced the gloomiest business sentiment in one year and eight months.

The Construction Business Survey Index (CBSI) of domestic construction companies, which was reported in July by the Construction and Economy Research Institute of Korea (CERIK), was 45.6, down 10.1 points from June (55.7). The CBSI on July was the lowest after November 2004 (44.8).

The KDI said in a report on economy trends, “The continued growing decrease in construction investment led the increase in domestic demand on June to stagnate. It means that the increase rate is being adjusted within narrow range by the stagnant construction investment along with the slow-down of consumption growth.”

The KDI also warned that “there is high possibility that economy upturn will continue to slow down, since a sign of U.S. economy stagnation is noticed with the oil price rising.”

This is rather different from what the government announced as a “temporary slow-down” about unfavorable situations of various macroeconomic indexes.

The Ministry of Finance and Economy expressed an optimistic view, saying, “Economy indexes of July are likely to get more depressed, due to torrential downpours, than expected. But, the temporary factor will be addressed through governmental efforts.”

KDI researcher Shin In-seok countered this, saying, “Even if we can resolve the temporary factor, I think the economic slow-down will continue until the end of this year.”

The KDI is thought to change its view on economy prospects, although it announced in an economic trend analysis report one month ago that “there is not much probability of business collapse, as business situation keeps on expanding and improving.”

witness@donga.com sanjuck@donga.com