NABO Economic Trends (No. 41)

Published on Feb., 23, 2024
Published by Economic Analysis Coordination Division

■ Economic Trends
   While the recent recovery in the Korean economy's exports, particularly in the semiconductor sector, is evident, there is a slowdown in domestic demand attributed to continued sluggish consumption trends
   In December 2023, retail sales experienced a 0.8% MOM decline, attributed to a continued decrease in the sales of major items, including non-durable goods, and the Value of Construction Completed (remained unchanged) continued to decline by 2.7% MoM due to sluggish construction activities. On a positive note, exports in January 2024 saw a significant increase, particularly in semiconductors, rising by 18.0% YoY, while imports decreased by 7.8% YoY. Consumer prices in January, 2024 recorded a 2.8% YoY increase, with both product and service prices on the rise. In December 2023, the All Industry Production Index (AIPI) showed a 1.1% YoY and 0.3% MoM increase, driven mainly by the manufacturing industry. Notably, manufacturing production in December 2023 surged by 6.7% YoY, particularly in semiconductors, steel, and petroleum, attributed to the recovery in exports. Service industry production also increased by 0.2% YoY, mainly in the transportation and warehousing industry, health industry, and social welfare service industry. In January 2024, the number of employed individuals continued its upward trend, increasing by 380,000 YoY to 27.743 million, maintaining this positive trajectory for 2 years and 11 months, however, the unemployment rate slightly increased by 0.1%p YoY to 3.7%. In the domestic financial markets, external uncertainties expanded, leading to increases in treasury bond yields and the won/dollar exchange rates. The three-year treasury bond yields in January 2024 rose from 3.15% at the end of December 2023 to 3.26% at the end of January 2024, driven by heightened uncertainty related to the US Federal Reserve's monetary policy, and the won/dollar exchange rate also increased from 1,289 won at the end of December 2023 to 1,331 won at the end of January 2024.

■ Pending Economic Issue: Examination of real estate PF loan status and risk factors
   Reviewing of measures needed to minimize the impact of real estate PF insolvency on finances and the broader economy, including investment sentiment and employment
   As of September 2023, real estate PF loans have surged to 134 trillion won, reflecting a 103% increase since 2017, with concerns growing due to escalating construction costs and a sluggish apartment sales market. The overall delinquency rate for real estate PF loans increased from 0.55% in 2020 to 2.42% in September 2023, with unsecured PF loans from institutions such as securities companies and savings banks experiencing a notable rise. Notably, Korea's real estate PF developers face heightened vulnerability due to a low proportion of equity capital. The real estate PF loans of the Korean Federation of Community Credit Cooperatives surged from 7.9 trillion won in late 2020 to 23.3 trillion won in the second quarter of 2023, representing the most substantial increase among financial institutions. Nonetheless, the lack of integrated management and supervision in real estate PF loans persists due to differences in supervisory institutions. Addressing the potential adverse effects of real estate PF insolvency on finances and the broader economy, including investment sentiment and employment, requires a comprehensive review of mitigation measures. Initial steps involve strengthening the capital requirements for real estate PF developers and establishing systematic classification criteria and management for the often-overlooked initial real estate PF loans. Furthermore, it is essential to explore integrated management plans involving the Financial Services Commission and the Financial Supervisory Service, possessing expertise similar to that of general financial institutions. This is particularly crucial in cases that meet specific requirements, such as asset soundness issues that have arisen with the Korean Federation of Community Credit Cooperatives.