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| An official at the Korea Development Institute (KDI) announces the nation's economic growth outlook at the government complex in Sejong, central Korea, in this Sept. 8, 2020 file photo. Courtesy of KDI |
Private spending and construction investment in Korea are gradually being affected by aggressive rate hikes amid high inflation, a state-run think tank said Wednesday.
The assessment came as the Bank of Korea maintained the benchmark interest rate at 3.5 percent in February while keeping the door open for a further increase down the road. The bank carried out seven straight rate hikes between April last year and January.
"Consumption is gradually slowing down, with retail sales remaining stagnant and the growth of service production decelerating," the Korea Development Institute (KDI) said in its monthly report.
In January, retail sales, a gauge of private spending, decreased 2.1 percent on-month due to weaker demand for semidurable goods and food.
A slump in the real estate market due to high-interest rates has dampened investment in construction, it added.
Separate data compiled by the finance ministry showed the number of houses traded in December came to 28,603, down 46.8 percent from a year earlier, as more people refrained from purchasing new homes amid higher borrowing costs.
The KDI also pointed out that Korea's exports continued to slow due to the weaker demand from China, along with the sluggish performance of the chip sector.
"The manufacturing industry is undergoing a considerable contraction, marked by a sharp decline in production and an evident increase in inventories, especially of semiconductors," the KDI said.
"Lackluster manufacturing has resulted in a decline in equipment investment and a slowdown in employment growth," it added.
Exports of semiconductors, the country's key export item, dived 42.5 percent to US$5.96 billion in February from a year earlier amid the downcycle of the semiconductor industry.
The researcher, however, said the business sentiment in the non-manufacturing segment is improving on hopes over the reopening of the Chinese economy, although it may take some time for Korea to experience its impact. (Yonhap)
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