NABO Economic Trends & Issues (Issue No. 59)
I. Economic Trends
Although production in Korea has recently made a rebound from a 3-month consecutive decline, the Korean economy is struggling to undergo a recovery as employment conditions and investment-related leading indicators deteriorate. Consumer prices in August increased by a larger rate compared to the previous month, due to price increases in agricultural, livestock and fisheries products as well as electricity. The won-to-dollar exchange rate showed high volatility due to heightened geopolitical risks concerning North Korea, while treasury bond interest rates (3-year maturity) continued to be on the rise.
Ⅱ. Analysis of Recent Factors related to National Consumer Price Volatility
While consumer prices rose up to 2.0% during the first half of 2017, analyses revealed that the recent inflation was mainly due to supply-side factors such as the decrease in the supply of agricultural, livestock and fisheries products as well as increased international oil price volatility. Breaking down the factors by area, it was found that in 2017, the areas highly relevant to the supply-side inflation factors had a stronger influence than before on consumer prices. In addition, according to empirical analysis, consumer prices are affected up to a certain level by domestic aggregate demand pressure and real household income. Since temporary inflation triggered by demand shock may cause consumer confidence to shrink and delay economic recovery, stable consumer price increases through a solid recovery based on real domestic demand is necessary.
Ⅲ. Analysis of the Recent Economic Expansion and its Characteristics
During the recent economic expansion, economic flow was being maintained at a steady level compared to previous expansions. According to a comparative analysis of the volatility of the Coincident Composite Index components during the past 3 phases of economic expansion, economic activity was weaker in the recent phase mainly because of the lower volatility in the non-farm payroll index, the value of construction completed, import volume as well as the service industry activity index. Another factor was that there was weaker mutual influence between economic sectors.
Ⅳ. Characteristics of the Korean Service Industry in Comparison with other OECD Members
Representing a large portion of the total number of jobs and total value-added creation of OECD member states, the service industry has been acting as a booster during periods of economic shock. When comparing the other OECD members and Korea in terms of proportion of employment, added value as well as per-capita added value by each sector of the service industry, Korea’s service industry was found to be relatively less represented with wide gaps between sectors. The annual volatility of Korea’s employment, added value and per-capita added value was also higher than that of other OECD member states. Therefore, in order to create quality jobs and enhance the competitiveness of the service sector, it is necessary to develop ways to mitigate volatility and enhance the proportion of employment in the service sector in addition to added value as well as per-capita added value.