Economy still faces bumpy road: think tank

The South Korean economy will unlikely gain recovery momentum in the short-term as faltering exports and flaccid production offset a modest rise in domestic consumption, a state-run think tank said Thursday.

"Despite continued favorable growth in domestic demand, including retail sales and construction investment, the economy is showing little signs of an overall recovery," the Korea Development Institute said in its monthly evaluation of the country's economic conditions.

"Moreover, a rapid improvement is unlikely with the excise tax cut effect dissipating and corporate restructuring taking its toll."

Retail sales soared 8.9 percent in June from a year earlier, up from a 5.3-percent jump tallied in May on the back of stellar sales of passenger cars.

The government-led tax cut program, which ended on June 30, drove car sales to post a 20-percent on-year surge in the final month of June.

Production in the service industry gained 5.4 percent on-year in June as hotels and restaurants basked in a flood of Chinese tourists, which rose 27 percent on-year to 3.81 million during the first half.

Construction investment improved steadily as the value of construction completed enhanced 18.5 percent on continued growth in civil engineering and building construction.

The production side, however, has remained in doldrums amid protracted low oil prices and sluggish world trade.

Exports of Asia's fourth-largest economy tumbled 10.2 percent last month, the largest on-year decline in three months, following a 6-percent drop in May and 2.7-percent fall in June.

The July figure also extended its negative growth streak to a record 19 straight months since January of 2015.

The country's industrial output, which is directly linked with outbound shipments, edged up 0.8 percent in June, sharply slowing down from a 5.4-percent jump in May due to sluggish car manufacturing.

June's average plant utilization in the manufacturing sector reached 72.1 percent, down 0.9 percentage point from a month earlier.

The think tank said such downside risks will weigh heavily on the economy in the coming months, with the on-going corporate restructuring in shaky industries like shipbuilding expected to lay more pressure on the labor market.

"With the excise tax cut expiring, the second half will likely see declines in durable goods sales and transport equipment investment, which has posted marked growth," the KDI said.

"Meanwhile, the unemployment rate went up in regions where shipbuilding businesses are clustered, meaning that corporate restructuring could temporarily retard the economic recovery." (Yonhap)