NABO Economic Trends (No. 33)

Published on Oct., 20 2022
Published by Population & Strategy Analysis Division

■ Economic Trends
   Despite the Korean economy in continued uptrend revolving around the service industry lately, circumstances for its further growth are becoming increasingly unfavorable, with export growth slowing due to deteriorating external conditions, and increasing volatilities in the financial market following interest rate and exchange rate hikes.
   Domestic demand showed signs indicating that consumption and investment were no longer stagnant in August. Retail sales increased 4.3% MoM, turning positive for the first time in six months, coupled with facility and construction investments that shifted positively as well. Production continued to be brisk in the service industry in August, but the manufacturing industry seemed to be lethargic: service industry production increased by 1.5% MoM, while manufacturing production decreased by 1.6%, resulting in a 0.3% decline in all industrial production. In September, despite an increase of 2.8% YOY in exports, imports increased more sharply (18.6%), resulting in a trade deficit of USD 3.77 billion and a cumulative trade deficit of USD 28.9 billion in 2022. In August, the current account also turned to a deficit of USD 3.5 billion.
   As for employment, the number of employed persons increased by 707,000 YoY in September, continuing a bullish trend, but the pace of growth slowed. The domestic consumer price index (CPI) rose by 5.6% due to the rise in prices of major items such as goods and services, and continued on an upswing path during September. In the financial market, interest rates and exchange rates continued to ascend. As of the end of September, the yields of the 3-year-maturity treasury (short-term) and the 10-year-maturity treasury (long-term) bonds were inverted for the first time since the end of 2007, and the won/dollar exchange rate recorded KRW 1,435, the highest since March, 2009.

■ Pending Economic Issue 「Recent Interest Rate Hikes and Real Estate Market Trends in Major Countries」
   Since 2019, housing prices in major countries surged amid low interest rates. However, as increasingly prevalent global inflation of late is forcing major countries to keep raising key interest rates, there are growing concerns about housing prices dropping. With mortgage interest rates upturning following the key interest rate hikes in major countries, the elevation in housing prices has either slowed or saw a descent. Housing prices in Australia and Canada, which had recently experienced a steep rise, turned downward starting in April and June of 2022, respectively, and although the U.S. and U.K. demonstrated an upward trend in their housing prices through July of this year, the opposite trend is expected in the future. As a sharp decline in housing prices could lead to a contraction in domestic demand by sapping consumer sentiment and decreasing construction investment, etc., efforts to soft-land the housing market need to be put forth.