Weak domestic demand continues to affect S. Korean economy: KDI

Weak domestic consumption and investment have hampered the South Korean economic recovery despite strong exports, a state-run think tank said Thursday. "The South Korean economy is experiencing limited improvement as the recovery of domestic demand, especially in construction investment, is delayed, despite favorable conditions in exports," the Korea Development Institute (KDI) said in a monthly economic assessment report. The think tank has pointed to weak domestic demand since late last year. Exports rose 7.5 percent on-year to US$58.7 billion in September, the 12th straight monthly gain, on the back of robust shipments of semiconductors, according to government data. But retail sales, a gauge of private spending, fell 1.3 percent on-year in August due mainly to sluggish demand for cars, electronics, mobile gadgets and other goods. Facility investment tumbled 5.4 percent on-year in August, ending its two-month winning streak, as investment in aircraft and other transportation equipment fell markedly. Construction investment dropped 9 percent on-year in August, following a 5.2 percent decline a month earlier, on fewer new orders in the sector. "Construction investment remains sluggish, due to a worsening downturn in the building construction sector," the KDI said. "Given the accumulated weakness in leading indicators, the slump in construction investment is likely to continue for the time being." As a major challenge, the think tank pointed to escalating tensions in the Middle East. "The conflict in the Middle East has not had spillover effects on the real economy. If it pushes up global oil prices and disrupts logistics, however, domestic demand and overall economic sentiment would worsen further," KDI official Jung Kyu-Chul said. Source: Yonhap News Agency