Economic recovery losing steam

By Kim Jae-kyoung

Amid renewed fears of a double dip recession abroad, the Korean economy is showing signs of losing steam, with data indicating an eventual slowdown in economic growth.

The bleak report came as Asia’s fourth largest economy is increasingly exposed to downside risks due to sluggish external demand caused by slowing U.S. and Chinese economies, a prolonged slump in the property market and rising raw material costs.

Businesses have turned pessimistic about the economic condition, with the manufacturers’ business confidence falling in August for the second consecutive month due to lingering woes abroad.

The Bank of Korea (BOK) reported Tuesday that the manufacturers’ business survey index stood at 98 for August, down from 103 in July. The index measures manufacturers’ assessment of current business conditions. It declined below the benchmark 100 for the first time in five months.

“Signs of the slowing global economy hampered overseas demands for Korean goods for this month,” a BOK economist said.

The index measuring exporters’ business conditions declined by 8 points to 104, while that for domestic-focused firms fell only 2 points, which suggests that local exporters are already feeling the pinch from the slowdown of major economies.

According to the report by Statistics Korea, the leading economic composite index dipped 0.4 percentage points from a month earlier, marking the seventh straight month of contraction. The index is used to predict the economic performance eight to 15 months ahead.

Producers’ shipments grew 0.6 percent month-on-month, a slowdown from a 1.7 percent increase. Inventory surged by 3.5 percent in July after June’s 0.2 percent fall, which suggests domestic demand was a bigger drag on July’s industrial production than exports.

“The steepest inventory bounce in five months highlights faltering demand,” ING Group economist Prakash Sakpal said in a research note.

Despite the rapid GDP growth, the job market still remains in the doldrums. In spite of a mild recovery in the local job market, the jobless rate for the youth, or those aged between 15 and 29, jumped to 8.5 percent in July, with 247,000 young people failing to find jobs, up 33,000 from the previous month.

On concerns over the global recovery, there is a growing possibility that the Bank of Korea (BOK) will freeze the key interest rate again in September. It froze the key interest rate at 2.25 percent in August after hiking it from a record low of 2 percent in July.