Korean economy facing growing downside risks: KDI

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Despite a moderate recovery, the Korean economy faces increasing downside risks as worsening external conditions hamstring investments and exports, a state think tank said Monday.

Asia's fourth-largest economy has been gathering recovery momentum on robust growth in the services sector, but business sentiment has been hit by policy uncertainties in major economies and continued global supply chain disruptions, the Korea Development Institute (KDI) said in its monthly economic report.

"The economy remains on a recovery path following the easing of COVID-19 social distancing measures, but downside risks are expanding as growth of exports and investments slows due to deteriorating external conditions," the report said.

In mid-April, Korea lifted most of its social distancing restrictions, including gathering limits and business hour curfews, as part of the country's efforts to return to pre-pandemic normalcy.

The report said worsening global supply chain bottlenecks and high international materials costs have put a dent in Korea's construction and corporate facility investments, with China's COVID-19 lockdowns further deteriorating external conditions.

Korea's exports, especially those to China, have thus been growing at a slower rate, with the auto and some other industries suffering output disruptions and the country's business sentiment remaining low.

Seoul's overseas shipments rose 12.6 percent in April from a year earlier, slowing from an 18.2 percent year-on-year surge a month earlier. But spiking energy costs sent its imports up 18.6 percent year-on-year last month, resulting in a trade deficit of $2.66 billion.

Dubai crude, Korea's benchmark, rose to $102.82 per barrel in April on average from $62.92 a year earlier.

Korea depends mainly on imports for its energy needs.

According to the Bank of Korea, its business survey index came to 86 for May, up three points from the previous month but remaining below the benchmark 100 that separates optimism from pessimism.

The report also said increased financial market volatility stemming from the U.S. Fed's acceleration in rate hikes have been building up downside risks on the Korean economy. Early last week, the U.S. central bank hiked its key rate by the widely expected 0.5 percentage points and is widely expected to carry more rate increases down the road. (Yonhap)