Both production and demand have weakened in further bad news for the Korean economy that is facing a slowdown in exports, the state think tank Korea Development Institute (KDI) observed in its latest monthly economic report.

KDI began giving downbeat monthly assessments about the economy from November, with its anxieties about domestic demand spreading to softening in exports. From last month, it turned decisively negative as exports extended losses amid the protracted slump in domestic demand.

The sluggish demand at home and abroad have led to slackening in manufacturing and further dampened consumption, the institute said.

Outbound shipments in February slipped 5.8 percent on year, extending a 1.3 percent decline in the previous month. The sharpest fall came from semiconductors, plummeting 8.3 percent in January and 23.3 percent in February. Petrochemicals continued to slide downward, down 6.3 percent and 5.3 percent over the same period. Ship exports, which were up 26.4 percent in January, faced a 17.8 percent decline in February.

Domestic spending showed marginal recovery. Retail sales in December gained a mere 3.0 percent, falling short of the 2018 annual average of 4.2 percent.

In another sign of poor demand, manufacturing inventory levels have been rising steadily, from 106.9 percent in October to 111.7 percent in November. In December, the figure jumped to 116.0 percent, the highest since the 1998 Asian financial crisis.

Companies have been reluctant to spend on facilities investment amid the growing market uncertainty and gloomy outlook. The capex index in October was up 10.0 percent on year but fell 9.3 percent in November and another 14.5 percent in December.

KDI projected Korea’s economic growth this year to be 2.5 percent based on a survey of 21 economists. This is lower than government forecasts of 2.6 to 2.7 percent.

By Moon Jae-yong and Kim Hyo-jin

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