NABO Economic Trends (No. 34)

Published on December 20, 2022
Published by Population & Strategy Analysis Division

■ Economic Trends
   With Korea continuing to experience prolonged sluggish production and consumption along with declining exports and shrinking consumer sentiment, economic slowdown is increasingly likely to occur.
   In October, mainly driven by consumption, domestic demand was stagnant, with retail sales on a downward slope for two consecutive months. The domestic consumer price index (CPI) also fell for two consecutive months, indicating worsening consumer sentiment. However, facility investment remained at a similar level as last month, while construction investment increased. Exports decreased for two consecutive months as of November, recording a trade deficit of USD7.01 billion, and the trade deficit that has been ongoing for the past eight months has resulted in a cumulative deficit of USD 42.61 in 2022.
   In October, all industrial production decreased 1.5% MoM, continuing its downward trend for the fourth consecutive month. Manufacturing production fell for four consecutive months MoM due to contracted production in home appliances, computers, and peripherals, and production in the service industry has been on a downward trajectory for two consecutive months as well. As for employment, although all indicators are continuing to be on a favorable path with the number of employed persons increasing by 626,000 in November, the pace of growth in the number of employed persons continues to slow and the number of employed young people (15-29 years old) and those in their 40s fell.
   In November, the market interest rate and exchange rate trended downward in the financial market, putting the brakes on the market’s bullish trend. As of the end of November, the yields of 3-year-maturity treasury bonds were 3.69%, down 0.5%p MoM, and the won/dollar exchange rate recorded 1,332 won, down 6.2% MoM.
   The volatility rate of the nationwide housing sales price index dropped further due to the interest rate hike in November and the expected prolonged decline in housing prices, and the housing sales transaction volume diminished significantly as well. The domestic consumer price index (CPI) continued to rise in the 5% range YoY in November, albeit it was less steep.

■ Pending Economic Issue 「Assessment of recent domestic economic conditions using economic analysis techniques」
   Recently, there have been increasing concerns of whether Korea’s economic cycle will turn for the worse. Major institutions engaging in economic forecasting have revised downward Korea’s economic growth rate for 2023, and coming in October, key domestic economic indicators were on a clear downward path. The cyclical component of the leading composite index, which forecasts the future economy, also suggests a possible economic slowdown. In this paper, the possibility of a downturn in the economic cycle was analyzed by estimating the latest economy at a peak using economic analytical techniques. Results of analyses using cyclical components of major economic indicators, Sequential signals, and the Neftci probability model indicate that the Korean economy may have reached its peak in the third quarter of 2022.