Sluggish Domestic Demand May Continue in the First Half of This Year

People may not see signs of economic recovery because of lackluster domestic demand which is likely to continue this year, despite a surge in exports.

Economic forecast in particular shows that the domestic economy may not recover in the first half of this year due to a drop off in orders for construction companies and sluggish sales in the distribution sector.

According to the distribution industry on Sunday, total sales during January 2 to January 17, the New Year’s sale season, dropped 4.8 percent year-on-year. The sales of men’ and women’ wear recorded the biggest decline of around 10 percent.

Sales at Hyundai and Shinsegae department stores fell 8 percent and 6.3 percent respectively during the sale season.

“Domestic demand has not picked up yet, and large corporations are conducting a campaign of not giving and receiving presents. To make matters worse, the National Tax Service introduced a policy that makes companies record personal information of gift certificate recipients,” said a department store staff member.

The construction sector, once the pillar of the domestic economy, has been stagnant since the end of last year.

The Construction Association of Korea (CAK) announced that the amount of orders received last November reached about 7.42 trillion won, a 23 percent decrease year-on-year, and 14.2 percent decrease from last month.

The decrease is the first decrease in eight months since last March, when the orders registered a yearly drop of 24 percent and monthly drop of three percent.

“Housing orders have plunged since the government’s regulation activities in the real estate market. The amount of orders received from the private sector will drop around 13 to 14 percent this year,” said Kim Kwan-su, director of the public relations division at CAK.

Meanwhile, new money issuance dropped due to sluggish domestic demand, and the economy grew by mere three percent in the fourth quarter of last year.

The Bank of Korea (BOK) announced that the amount of money newly issued at the end of last year was 24.49 trillion won, a 1.3 percent increase year-on-year.

The increase is the smallest in three years. The new money issuance declined 5.08 percent in 2000. It increased 4.25 percent in 2001 and 8.2 percent in 2002. In particular, the issuance last year reached 29.67 trillion won, an 8.8 percent decrease year-on-year.

“Money requirements for the first half of this year will be similar to last year,” said Kim Du-kyeong, a director of the BOK.

The Ministry of Finance and Economy predicted that economic growth in the fourth quarter of 2003 would be 3.6 percent and that the annual growth rate would be short of the government’s expectation of three percent.

“Oil price hikes and fluctuating exchange rates, among other things, make it hard to predict the growth rate, but we estimate that growth in the fourth quarter would be 3.6 percent, and the annual growth rate would be 2.8 to 2.9 percent,” said an official at the Ministry.