NABO Economic Trends (No. 40)

Published on Dec., 22, 2023
Published by Economic Analysis Coordination Division

■ Economic Trends
   Currently, the Korean economy's external sector is improving as exports rise, driven by better semiconductor market conditions. However, domestic demand remains sluggish, marked by a decrease in consumption and a decline in investment, attributed to sustained high interest rates.
   In October, “retail sales” and “facility investment” both declined on a MoM and YoY basis due to prolonged high interest rates. Retail sales dropped by 0.8% MoM, and facility investment decreased by 3.2% MoM. The Composite Consumer Sentiment Index fell MoM to 97.2 in November, indicating that sluggish consumption is likely to persist. In November, the “trade balance” had a surplus of USD 3.80 billion, sustained for four straight months, as exports increased and imports decreased, driven by improvements in the semiconductor industry. Exports, particularly in semiconductors, rose by 7.8% YoY, while imports decreased by 11.6% YoY. In November, “consumer prices” rose by 3.3% YoY, but there are indications that inflation is slowing amid sluggish domestic demand. In October, “all industry production index (AIPI),” “manufacturing production,” and “service industry production” all increased YoY. The AIPI grew by 1.0% YoY but decreased by 1.6% MoM; manufacturing production increased by 1.2% YoY, driven by increased semiconductor production; and service industry production saw a 0.8% YoY increase. In November, the “employment” saw a decline in the growth rate of employed individuals, and the unemployment rate increased MoM. The number of employed people increased by 277,000, a decrease from the previous month's 346,000. The seasonally adjusted unemployment rate (2.8%) rose MoM, while the employment rate (63.1%) decreased MoM. In November, the “treasury bond yields,” “won/dollar exchange rate,” and “government bond yields” in major countries all dropped, influenced by the alleviation of external uncertainties and anticipation of the conclusion of the US base rate hike cycle, etc. As of the end of November, three-year maturity treasury bond yields stood at 3.58%, reflecting a 0.5% MoM decrease compared to the end of the prior month. Additionally, the won/dollar exchange rate was 1,289 won, indicating a 4.72% MoM decline compared to the end of the preceding month. As of the end of November, ten-year maturity government bond yields in major countries were 4.33% in the U.S., showing a 0.6 percentage point MoM decrease compared to the end of the prior month. In the Eurozone and Japan, they also dropped by 0.36 percentage points and 0.28 percentage points, respectively, MoM compared to the end of the preceding month.

■ Pending Economic Issue: Causes and Responses to Germany's Economic Downturn
   With Germany's real GDP expected to decrease in 2023, an analysis of the causes behind the economic downturn was conducted, and the response of the German government to this situation was observed.
   Germany's real GDP is expected to contract (-0.2% to –0.5%) in 2023, extending the economic downturn that began in 2021 during the post-COVID-19 era. Key factors contributing to this prolonged low growth include the impact of escalating energy prices and tightness in the labor market. The surge in energy prices following the Russia-Ukraine war negatively affected the German economy, while the labor market experienced tension after the COVID-19 pandemic, resulting in an increased vacant job rate due to imbalances in supply and demand. In response to these economic challenges, the German government devised a plan to rejuvenate the economy by controlling energy prices and diversifying energy sources. Additionally, efforts were made to address labor market concerns, including attracting high-skilled workers through the enactment of the Skilled Immigration Act in June 2023.