NABO Economic Trends (No. 43)

Published on June 26, 2024
Published by Economic Analysis Coordination Division

■ Economic Trends
   Recently, our economy has shown some improvement thanks to high export growth, but the recovery of domestic demand remains slow. Consumer prices in May 2024 increased by 2.7% YoY, though the monthly increase slowed compared to April's 2.9% rise. Retail sales in April 2024 decreased by 1.2% MoM, mainly due to sluggish sales of durable goods and facility investment increased in transportation equipment but decreased in machinery, resulting in an overall 0.2% MoM decline. On the other hand, exports in May increased by 11.7% YoY, maintaining high growth, while imports decreased by 2.0%, resulting in a trade surplus of USD 4.96 billion. In April, the All Industry Production Index (AIPI), manufacturing, and service industries increased YoY: the AIPI increased by 3.1% YoY and 1.1% MoM; manufacturing production rose by 6.5% YoY, and service industry production increased by 2.0%. In May, the number of employed people increased by 80,000 YoY, though the growth rate slowed, and the unemployment rate rose by 0.3 %p YoY to 3.0%.In the domestic financial market in May, both treasury bond yields and the won/dollar exchange rate fell slightly MoM. The three-year treasury bond yields in May was 3.45%, and the won/dollar exchange rate was 1,377 won, both showing slight decreases from the end of the previous month.

■ Pending Economic Issues: Relationship between Retirement of Korean Baby Boomers and Employee Compensation
   The baby boom generation in Korea (1st generation: 61-69 years old, 2nd generation: 50-56 years old) is approaching retirement. Over the next 10 years, the first generation of baby boomers will exceed the effective retirement age (65.4 years for men and 67.4 years for women), and the second generation will surpass the official retirement age (60 years). The retirement of this demographic can primarily affect employee compensation (salaries and wages) and secondarily impact transfer income, asset income, and consumption. Estimations using a deep learning neural network model show that employee compensation may turn into a downward trend as the baby boomers retire. Moreover, the slowdown in the growth of employee remuneration is more pronounced than the overall slowdown in GDP growth due to the retirement of the baby boom generation, leading to a lower ratio of employee compensation to GDP. These findings indicate that the decline in the ratio of employee compensation to GDP may result in challenges for household consumption and fiscal management. Consequently, a comprehensive response plan is needed to mitigate the impact of the retirement and aging of the baby boomer generation.