KDI: 'Expecting Consumption Recovery with the Second Supplementary Budget'

U.S. Tariff Uncertainty Remains a Risk Factor

Despite the implementation of the first supplementary budget, the Korea Development Institute (KDI) evaluated that the economic trend remains sluggish. However, it left open the possibility that domestic demand could revive as consumer sentiment recovers.

On the 8th, in the 'July Economic Trends' report, KDI stated, "Recently, the Korean economy is still at a low level similar to the previous month, with weakness continuing in the construction sector and worsening external conditions." For the third consecutive month since its assessment of an 'economic slowdown' in the 'May Economic Trends' report, KDI has maintained a similar outlook. KDI analyzed that "while the downturn in construction persists, the manufacturing sector is also adjusting, resulting in weaker production growth." Although semiconductor exports and production maintained a favorable trend, KDI explained that the increase in manufacturing production has further narrowed due to weak U.S. exports, especially in the automotive sector.

Still, KDI stated, "Despite an improvement in consumer sentiment and signs of better domestic demand conditions, trade-related uncertainties remain at a high level as the end of the mutual tariff suspension approaches." This means that even though consumer sentiment is recovering, it remains to be seen whether the overall economy will improve due to trade uncertainties. KDI expressed optimism, expecting that "the easing of high interest rates and the allocation of two rounds of supplementary budgets will act as positive factors for consumption recovery going forward."

By Kwangsik Lee bumeran@hankyung.com