SEOUL, South Korea has experienced a slowdown in private consumption and investment amid high interest rates, though the economy has gradually recovered on the back of the semiconductor industry, a state-run think tank said Monday.

“The economy has shown a slight slowdown in domestic demand, though there is a gradual softening in the downturn, led by the semiconductor industry,” the Korea Development Institute (KDI) said in a monthly economic assessment report.

“Consumption and investment are both decelerating, largely influenced by persistent high interest rates, which led to a deceleration in both employment growth and inflation. But exports are exhibiting a recovery, serving a pivotal function in mitigating the economic slowdown,” it added.

The institute pointed to weak domestic demand in its December report for the first time in nine months.

Shipping containers are stacked at a pier in South Korea’s southeastern port city of Busan on Jan. 1, 2024. (Yonhap)

Shipping containers are stacked at a pier i
n South Korea’s southeastern port city of Busan on Jan. 1, 2024. (Yonhap)

In November, retail sales, a gauge of private spending, inched down 0.3 percent on-year, compared with a 4.5 percent fall the previous month.

The KDI said the improvement was due mainly to a low-base effect and other temporary factors, such as major discount events for vehicles and other items.

Retail sales climbed 1 percent on-month in November, following a 0.8 percent decrease the previous month.

Output from the service sector remains sluggish, as production in the accommodation and food service sector shed 3.3 percent, and the wholesale and retail trade decreased 1.5 percent.

Facility investment remained subdued amid high semiconductor inventories and higher-for-longer interest rates, the institute said.

Inflation has moderated gradually amid weak domestic demand.

In December, consumer prices rose 3.2 percent from a year earlier, slowing from 3.3 percent the previous month.

It marked the fifth consecutive month that the price
s have stayed above the 3 percent level, and the annual prices growth came to 3.6 percent in 2023.

Exports “exhibited a recovery,” driven by solid chips and automobiles sales, the KDI said, making a more positive assessment compared with the previous month when it noted “the slowdown in exports began to ease.”

In December, exports grew 5.1 percent on-year, rising for the third consecutive month.

After a yearlong downtrend, exports have bottomed out and logged on-year monthly gains from October last year.

Exports decreased 7.4 percent on-year in 2023, but the government expected exports to advance 8.5 percent this year to reach a record high of over US$700 billion.

Source: Yonhap News Agency