(LEAD) S. Korean economy feared to lose steam amid external uncertainty: gov't

(ATTN: UPDATES with more details in paras 3, 7-11)
By Kim Soo-yeon

SEJONG, June 17 (Yonhap) -- The South Korean economy is at the risk of losing steam as deteriorating external economic conditions are feared to dent investment and export growth amid high inflation, the finance ministry said Friday.

Market volatility and global economic downside risks further expanded due to the Federal Reserve's accelerating monetary tightening and global supply chain disruptions, the ministry said in its monthly economic assessment report, called the Green Book.

"Amid a continued buildup in price pressure, there are concerns about the economic slowdown due to sluggish investment and the weak recovery of exports," the report said.

The government presented a bleaker assessment than the previous month amid growing concerns about stagflation, a mix of slowing growth and high inflation.

Inflationary pressure has rapidly built up amid soaring oil and commodity prices, caused by the protracted war between Russia and Ukraine, and the recovery in demand.

South Korea's consumer prices jumped 5.4 percent on-year in May, the fastest rise in almost 14 years and a pickup from a 4.8 percent spike in April.

Market volatility heightened over fears of the Fed's aggressive monetary tightening and concerns about a global economic recession, with Seoul's stocks and currency sharply falling this week.

On Wednesday (U.S. time), the Fed raised its key rate by 0.75 percentage point, the sharpest hike since 1994, to tame surging inflation, and signaled it could raise the rate by the similar margin next month.

Exports, the main driver of economic growth, rose 21.3 percent on-year in May, extending their gains to the 19th month. But high fuel costs drove up the country's import costs, resulting in a trade deficit for the second straight month.

The finance ministry said exports are not likely to post double-digit growth in June, given fewer working days and the fallout of truckers' strike on logistics.

"It is hard to emphatically say the economy has entered the phase of a downturn, but the government has raised caution against a possible economic slowdown," Lee Seung-han, a financial ministry official, told a press briefing.

The government report showed sales at department stores and card spending grew at a faster pace in May than the previous month amid relaxed virus curbs.

Card spending rose 16.4 percent on-year last month, marking the 16th straight month of gains. The reading accelerated from a 13.8 percent on-year increase in April.

Sales at department stores increased 20.8 percent on-year in May, higher than a 15.6 percent rise in April. But domestic sales of autos dropped 5.4 percent, extending their falls into the third month.

The finance ministry unveiled its new economic policy plan Thursday that centers on deregulation and tax cuts in a bid to support private sector-led economic growth.

The government lowered its 2022 economic growth outlook to 2.6 percent from its December estimate of 3.1 percent, while sharply raising this year's inflation outlook to a 14-year high of 4.7 percent from 2.2 percent.

sooyeon@yna.co.kr
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