Despite a run of strong growth in exports this year, South Korea’s overall economic recovery has recently shown signs of slowdown due to a contraction in domestic spending and investment, government report showed on Friday.

As the slowdown comes at a time when the U.S. is threatening to withdraw from the U.S.-Korea free trade agreement (FTA) and geopolitical risk on the Korean peninsula is escalating following a series of missile and nuclear tests by North Korea, the South Korean finance ministry said it is time to not only energize the domestic economy but also keep in check external risks including trade issues.

According to a monthly economic assessment report published by the Ministry of Strategy and Finance on Friday, the Korean economy is on a recovery track thanks to brisk exports amid the recovery in global economy, but domestic consumption such as private spending has recently softened, raising concerns that the economic recovery is not as solid as expected.

In September, the country’s exports surged a whopping 35 percent from a year ago to an all-time high of $55.1 billion, extending gains for an eleventh consecutive month thanks to strong global demand for electronic components, steel and petrochemical products. Manufacturing and mining output also gained for two consecutive months in August, while production of the service industry also went up for a third consecutive month in August.

Overall consumption and investment, however, slowed down, offsetting strong exports.

Retail sales, a barometer for private consumption, declined 1 percent on month in August, snapping a three-month growth streak. The fall was mainly due to the nationwide heat wave that had led consumers to purchase electronics goods such as air conditioners earlier than usual. Consumers had also delayed their purchases of smartphones until new releases hit the market in September.

The composite consumer sentiment index that had been on the rise since the launch of the new government has changed its course, falling to 107.7 in September and 109.9 in August from 111.2 in July. Facility investment contracted for two straight months in August, down 0.3 percent on month, after semiconductor manufacturers purchased equipment in bulk in June. Construction investment also dropped 2 percent over the same period as civil engineering works declined due to frequent rain. From a year ago, construction investment rose 8.1 percent in August but overall construction orders dropped 3.4 percent, showing signs of slowdown.

But the finance ministry said domestic demand is not as weak as it appears, citing the rise in auto sales for three straight months from July.

By Boo Jang-won

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]