Increasing Risks for South Korean Economy Amid Global Trade Tensions
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Synopsis
The South Korean economy is encountering increased downside risks linked to a potential global trade conflict led by the United States, as production remains modest amidst a continuing decline in the construction sector, according to the Korea Development Institute.
Key Takeaways
- Potential global trade war poses risks.
- Construction sector continues to decline.
- South Korean manufacturing shows slight improvement.
- Exports have declined for the first time in 16 months.
- Political instability is impacting economic sentiment.
Seoul, Feb 10 (NationPress) The economy of South Korea is encountering heightened downside risks due to the looming global trade conflict primarily involving the United States. This comes at a time when production levels are only moderate, particularly in light of a continuing downturn within the construction sector, as reported by a state-run economic research institute.
According to the Korea Development Institute (KDI), "Our economy has demonstrated modest production growth; however, deteriorating external conditions have amplified the risks of downside impacts." This information was disclosed in a monthly economic review.
The KDI pointed out that recent developments regarding U.S. tariff policies have raised significant concerns, as highlighted by the Yonhap news agency.
Since taking office for his second term last month, U.S. President Donald Trump has revealed intentions to implement substantial tariffs on key trading partners to tackle America's trade deficits and pursue other policy objectives.
While there has been a slight improvement in South Korea's manufacturing sector, mainly attributed to robust semiconductor and automobile production, the construction industry continues to face challenges.
"The recovery in domestic demand, particularly in consumption and construction investments, is lagging, and the strong export growth is gradually losing momentum, except for the semiconductor segment," the KDI remarked.
As per government statistics, South Korea's exports, a pivotal component of its economic growth, saw a decline in January for the first time in 16 months.
Moreover, the KDI flagged concerns over diminishing retail consumption and rising delinquency rates among small business owners.
Meanwhile, stagnation in South Korea's industrial output is hindering the nation's overall economic recovery amidst growing uncertainties, worsened by domestic political instability.
The KDI stated, "Our economy has recently experienced a deceleration in industrial output growth, which is hindering economic advancement, and increased uncertainties have dampened economic sentiment," as noted in its previous monthly economic report.
The institute underscored that the economic sentiment has further declined due to local political dynamics, specifically referencing President Yoon Suk Yeol's brief declaration of martial law on December 3 and his subsequent impeachment.
