Despite the government show of confidence about pickup in the economy, state think tank Korea Development Institute (KDI) maintained gloomy evaluation of the economy in its latest report.

“The economy remains sluggish due to subdued exports and investment despite small improvements in demand, according to the KDI monthly economic report for May.

The state think tank decisively turned negative from more neutral “slowdown” reference in the economy from November to March.

“Although data shows some improvement, it is too fragile to change our judgment on the economy,” it said.

Exports for the first 10 days in May fell 6.4 percent on year, suggesting the losing streak in exports could extend to the sixth month.

The government maintained confidence of achieving a growth within the target of 2.6 percent to 2.7 percent this year, although the gross domestic product in the first quarter performed at its worst in a decade, adding just 1.8 percent on year and losing 0.3 percent on quarter.

KDI said retail sales growth has slightly improved but investment and exports remained sluggish. In March, industrial output rose 0.6 percent from a month ago, improving from negative growth in the previous month but still weak compared to the 1 percent average in January and February. Retail sales rose 2.4 percent in March from a month earlier, widening from the 1.3 percent average in January and February.

When it comes to overall investment in March, however, KDI said facility investment continued to weaken, particularly in the semiconductor sector, and early indices for construction investment still remain sluggish despite reduced fall in the value of construction completed.

Service production rose only by a slight margin while mining and manufacturing production continued to record an on-month fall as last month, KDI said. A steady fall in mining and manufacturing production has led to overall sluggish trend in industrial production.

The capital markets stayed “stable” in general, although the Korean won fell against the U.S. dollar due to deterioration in economic conditions and expectations for monetary easing, it said.

By Kim Yeon-joo and Lee Eun-joo

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