The South Korean economy is mired in a five-month slump, with the situation likely to worsen in the face of Japan’s tightened export curbs and the latest flare-up in tensions between the United States and China, said Korea Development Institute (KDI).

The state-run think tank gave a grimmer outlook for Asia’s fourth-largest economy in its August economic report released Thursday.

“The local economy is continuing its slump as investment and exports both remain weak,” the report said.

KDI saw the Korean economy as “slowing” since last November but changed its language to “slump” from April.

The country’s industrial output sharply changed course from a 1.2 percent gain in May to a 1.1 percent fall in June. Mining and manufacturing output fell 2.9 percent in June from a year earlier, with the service sector eking out a 0.1 percent gain. Factory operation also remained sluggish, averaging 71.9 percent.

Retail sales in June added 1.2 percent on year, slowing from the 3.4 percent rise in the previous month. This was largely due to the 1.9 percent decline in sales of durable goods, KDI explained.

Facilities investment tumbled 9.3 percent in June. Investment in the semiconductor sector continued to show steep falls, with spending on special industrial machinery plummeting 18.3 percent after logging a 25.5 percent decline in the previous month.

Import of capital goods, a leading indicator of investment, fell 13.5 percent in July. Imports of chip making equipment sunk 44.7 percent, sliding further from its 34.0 percent drop in June.

“Facilities investment is likely to remain subdued due to the chip sector,” KDI projected.

The trade-reliant economy saw exports contract 11.0 percent in July from the previous year, with semiconductor shipments 28.1 percent lower and petrochemical goods down 12.4 percent.

The sole relief was the labor market, as job gains rose at a steady clip in the service sector, KDI reported. Employers added 281,000 jobs in June compared with a year ago.

By Moon Jae-yong and Kim Hyo-jin

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