Increasing Exports Hindering Domestic Consumption/Unemployment

“Good exports, but what about domestic consumption?”

The economy is showing signs of recovery with strong export figures. However, it will be hasty to reach a conclusion that the economy will recover because of a slump in private consumption and a steadily increasing unemployment number.

The Korea Development Institute announced in the “Monthly Economic Trends” on November 23 that the economic slowdown is improving with an increase in South Korean exports due to the economic recovery of major export partners, such as the United States and Japan.

KDI explained, “Production and shipping expanded due to the favorable export condition. Moreover, inventory is decreasing, showing ample possibilities of economic recovery in the future.”

According to a survey, semiconductor and information technology (IT) are the ones leading the production increase. The production of semiconductor increased 37.3 percent during September from the same month last year. The IT industry also saw an 8.6 percent increase in production compared to September of the previous year.

Therefore, the average operation rate of the manufacturing industry on September was 78.7 percent, showing a 5 percent and 2.2 percent increase to 73.7 percent in July and 76.5 percent in August respectively.

However, indicators related to consumption are still in stagnation.

During September, the wholesales and retail sales were contracted by 3.0 percent compared with the same month last year. In particular, the shipping of consumer goods for domestic consumption decreased 6.2 percent, indicating the continued contraction in consumption mentality.

KDI analyzed that the labor market has shown stagnation. The unemployment rate adjusted to seasonal elements was 3.7 percent for October, the highest rate in 26 months.

Construction industry, a model industry for domestic consumption, showed a slower increase rate of leading indicators, whose decrease rate is also growing.

In September, the amount of orders received domestically increased 38.3 percent from the same month last year, but it showed a slower increase rate compared to July (80.3 percent) and August (44.2 percent). In particular, there is some analysis that the construction market is shrinking in full-scale due to the decreased number of admissions of construction area by 31.5 percent from the same month last year.

Jin-Hup Song jinhup@donga.com