Economic recovery momentum weakens: KDI

By Kim Soo-yeon

SEJONG, June 9 (Yonhap) -- South Korea's economic recovery momentum has weakened as the manufacturing industry is losing steam over the prolonged supply chain disruptions and soaring raw material prices, a state-run think tank said Thursday.

In-person services gained traction due to the lifting of virus curbs, but export growth has gradually eased amid the global economic slowdown and China's COVID-19 lockdowns, the Korea Development Institute (KDI) said in a monthly economic assessment report.

"South Korea's economic recovery is losing steam over global supply chain disruptions and surging raw material prices, despite the recent upturn in the service industry," the report said.

Concerns about stagflation, a mix of slowing growth and high inflation, have mounted as the country has faced heightened economic uncertainty amid the protracted war between Russia and Ukraine.

Inflationary pressure has built up as fuel and food prices have surged due to the Ukraine crisis and supply chain bottlenecks. Demand-pull inflation also rose due to the economic recovery.

South Korea's consumer prices increased at the fastest clip in almost 14 years in May. Consumer prices jumped 5.4 percent on-year last month, accelerating from a 4.8 percent spike in April.

Exports rose 21.3 percent on-year in May, extending their gains to the 19th month. But the nation suffered a trade deficit for the second straight month due to high global energy prices.

South Korea's industrial output, retail sales and facility investment declined together for the first time in over two years in April in the latest sign that economic recovery momentum remains fragile.

The Organization for Economic Cooperation and Development (OECD) on Wednesday sharply raised its 2022 inflation outlook for South Korea to a 24-year high of 4.8 percent from its earlier estimate of 2.1 percent.

The Paris-based organization also cut its 2022 growth outlook for the South Korean economy to 2.7 percent from 3 percent.

In its latest revised outlook in May, the Bank of Korea (BOK) forecast Asia's fourth-largest economy to grow 2.7 percent this year and inflation to spike 4.5 percent.

The KDI said high inflation is posing "downside" risks to economic activities as it is feared to erode the purchasing power of households and companies amid rising interest rates.

Last month, the BOK raised the key interest rate by a quarter percentage point to 1.75 percent, the fifth rate hike since August last year, to put a lid on inflation and curb household debt. The central bank is widely expected to further raise the borrowing costs in the coming months.

The OECD recommended the BOK conduct its monetary policy "to keep inflation expectations anchored."

sooyeon@yna.co.kr
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