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KDI News What‘s Up Newsletter Vol.21

The 21th issue of the KDI What's Up newsletter is now available!

May 20, 2025
Economic Outlook KDI Economic Outlook 2025-1st Half

The Korean economy is projected to grow by 0.8% in 2025, weighed down by a contraction in construction and deteriorating trade conditions.

May 14, 2025
News KDI President Participates in the Global Labor Market Conference (GLMC)

KDI President Dongchul Cho participated as a speaker at the GLMC, held in Riyadh, Saudi Arabia, from January 29 to 30.

February 06, 2025
KDI FOCUS Competition Policy for Online Platforms’ Self-Preferencing Conducts

Self-preferencing by online platforms encompasses a spectrum of conduct types, all with implications for both anti-competitive and...

December 23, 2024
News The 2024 KDI Conference: Reform Measures for Enhancing Productivity in the Korean Economy

In his opening remarks, KDI President Dongchul Cho emphasized that enhancing productivity across society is essential to supporting...

December 17, 2024
KDI FOCUS Protecting Customer Funds for Emerging Financial Products

Emerging financial products driven by innovation, such as virtual assets and simplified payment services, introduce both new conveniences and...

December 03, 2024
KDI FOCUS Galapagos Syndrome in South Korea’s Real Estate PF, and the Need for Fundamental Structural Reform

Over the past several decades, real estate project financing (PF) has repeatedly triggered economic disturbances in Korea, with no fundamental remedies in sight until now.

December 02, 2024
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Summary

Monthly Economic Trends KDI Monthly Economic Trends 2025. 6
■ The Korean economy remains subdued overall, weighed down by continued weakness in the construction sector and a slowdown in exports under the impact of U.S. tariff hikes.
　 　 　
　 ○ Construction investment continued to decline, while exports also showed weakening momentum.
　 　 　
　 - Weakness in construction investment is constraining the recovery in domestic demand, while overall production growth is slowing, particularly in the construction sector.
　 　 　
　 - Exports weakened further, particularly in sectors more directly affected by U.S. tariffs, as reflected in a decline in motor vehicle exports to the U.S.
　 　 　
　 - Meanwhile, persistent strength in semiconductor demand has supported continued robust growth in production, exports, and investment in related equipment.
　 　 　
　 ○ Meanwhile, while household and business sentiment showed modest improvement amid easing domestic political instability and the U.S.-China trade agreement, external uncertainty remains elevated.
　 　 　
　 - Trade-related uncertainty continues to run high, driven by further increases in steel and aluminum tariffs and lingering concerns over a potential resurgence of U.S.-China trade tensions.

Summary

Monthly Economic Trends KDI Monthly Economic Trends 2025. 5
■ The Korean economy is showing signs of a slowdown, as external conditions have sharply deteriorated.
　 　 　
　 ○ A weakened construction sector is weighing on the recovery of domestic demand, while deteriorating trade conditions are slowing exports.
　 　 　
　 - Manufacturing production remains on a favorable trajectory, led by semiconductors, accompanied by a significant increase in related investment.
　 　 　
　 - However, the protracted downturn in construction is keeping overall production and domestic demand growth at low levels.
　 　 　
　 - Average daily exports declined, led by exports to the U.S., amid worsening trade conditions stemming from recent U.S. tariff hikes.
　 　 　
　 ○ The global economic slowdown, driven by worsening trade conditions, is expected to exert mounting downward pressure on economic activity, particularly in exports.
　 　 　
　 - Global growth forecasts, especially for the U.S. and China, have been significantly downgraded, while elevated volatility in global financial markets is dampening economic sentiment both domestically and globally.

Summary

Monthly Economic Trends KDI Monthly Economic Trends 2025. 4
■ The Korean economy is facing mounting downward pressure as external conditions deteriorate rapidly.
　 　 　
　 ○ Weakened growth in domestic and external demand is weighing on production.
　 　 　
　 - While equipment investment remains on a solid trajectory, continued sluggishness in construction investment and weak consumption growth are limiting the pace of domestic demand recovery.
　 　 　
　 - Exports have partially rebounded from their early-year lows; however, the overall pace of growth continues to moderate.
　 　 　
　 - As a result, construction production continued to decline sharply, while growth in industrial and service production remained modest.
　 　 　
　 ○ U.S. tariff hikes have exacerbated global trade conditions, intensifying downward pressure on exports.
　 　 　
　 - With trade tensions rising, global growth projections have been revised downward, and business sentiment is weakening among export-oriented companies.
　 　 　
　 - Export conditions further worsened as the impact of U.S. tariff hikes began to weigh on trade in April.

Summary

Monthly Economic Trends KDI Monthly Economic Trends 2025. 3
■ The Korean economy exhibits growing downside risks amid a deepening slump in the construction sector and worsening export conditions.
　 　 　
　 ○ Manufacturing production continues to improve, driven by semiconductors.
　 　 　
　 - Despite lower production in manufacturing due to fewer working days during the Lunar New Year and temporary public holidays, the average capacity utilization rate, adjusted for working days, maintained its upward trend.
　
　 ○ However, construction investment remains subdued, and export growth is slowing.
　 　 　
　 - Both construction investment and employment in the sector remain subdued, while the improvement in leading indicators is also weakening.
　 　
　 - With semiconductor export prices, a key export item, declining, the impact of rising external uncertainties is gradually spreading, keeping export growth subdued.
　 　 　
　 ○ The impact of political instability is easing, yet deteriorating external conditions are increasing downside risks to the economy.
　 　 　
　 - Household and business sentiment indicators are gradually recovering from the political instability shock of late last year; however, concerns over a global trade slowdown are growing, driven largely by escalating U.S.-led trade tensions.

Summary

Monthly Economic Trends KDI Monthly Economic Trends 2025. 2
■ The Korean economy maintains modest production growth, while downside risks heighten amid worsening external conditions.
　 　 　
　 ○ While the manufacturing industry shows improvements, particularly in semiconductors and automobiles, overall production growth remains modest due to weaknesses in the construction industry.
　
　 ○ Domestic demand recovery remains sluggish due to weak consumption and construction investment, while export growth is gradually slowing from its previous strength, particularly in non-semiconductor sectors.
　 　 　
　 - Retail sales and the value of construction completed continue to decline, while household and business sentiment indicators remain at low levels.
　 　
　 - Despite strong growth in semiconductors, exports are showing signs of slowdown mainly in other sectors.
　 　 　
　 ○ As political uncertainty persists, rising external uncertainties are heightening downside risks to the economy.
　 　 　
　 - Concerns are growing over contracting trade conditions as tensions, led by the U.S., intensify.

Summary

Monthly Economic Trends KDI Monthly Economic Trends 2025. 1
■ The Korean economy is experiencing mounting downward pressure, as the economic recovery is delayed by slowing production growth, accompanied by weakening economic sentiment amid growing uncertainties.
　 　 　
　 ○ Semiconductor production maintained high growth, while related equipment investment and exports continued on a robust trajectory.
　
　 ○ However, excluding semiconductors, production and exports in other sectors have slowed, and domestic demand remains subdued, particularly in the construction industry.
　 　 　
　 - Construction production continues to decline sharply, while growth in services and non-semiconductor manufacturing is slowing.
　 　
　 - Goods consumption and construction investment continues to exhibit prolonged weakness, weighing on economic recovery.
　 　 　
　 ○ Amid growing external uncertainties, domestic political uncertainty is exacerbating economic sentiments.
　 　 　
　 - Despite recent political turmoil, financial market indicators, such as exchange rates and stock prices, have remained relatively stable, although household and business sentiment indices have dropped significantly (see Box).

Summary

Monthly Economic Trends KDI Monthly Economic Trends 2024. 12
■ The Korean economy exhibits signs of limited improvement, primarily in the construction industry, amid escalating uncertainties.
　 　 　
　 ○ Semiconductor production and exports continue to show robust growth, with related equipment investment maintaining its upward trend.
　
　 ○ However, goods consumption and construction investment remain subdued, constraining the recovery of domestic demand.
　 　 　
　 - Goods consumption continues to slide while delinquency rates among sole proprietorship businesses remain on an upward trend.
　 　
　 - Despite improving leading indicators related to construction, the value of construction completed continues to recede, while employment conditions are experiencing modest adjustments, particularly in the construction industry.
　 　 　
　 ○ Meanwhile, the deteriorating global trade environment following President Trump’s election could adversely affect Korea’s export performance.