Uneven pace of economic recovery among sectors continues in S. Korea: finance ministry

The South Korean economy has shown signs of recovery since the second half of 2020, primarily driven by the strong performance of the manufacturing sector and exports. According to the Ministry of Economy and Finance in South Korea, the country's economy expanded by 1.7% in the third quarter of 2021 compared to the previous quarter, marking the fifth consecutive quarterly increase. This growth was mainly attributed to the expansion of the manufacturing sector, which grew by 3.3% in the third quarter, and the continued growth of exports, which reached an all-time high of $631.5 billion in the first eleven months of 2021.

However, despite these positive signs, there are concerns that the recovery may not be evenly distributed across all sectors of the economy. Domestic demand, which includes private consumption and investment, remains weak. Private consumption, which accounts for about two-thirds of the country's economic activity, grew by only 0.3% in the third quarter compared to the previous quarter. This is due in part to the ongoing impact of the COVID-19 pandemic on consumer behavior and confidence.

Furthermore, there are growing uncertainties over global prices of raw materials, which could negatively affect the country's export-driven economy. The prices of key commodities such as semiconductors, steel, and petroleum have seen significant fluctuations in recent months due to various factors including supply chain disruptions, geopolitical tensions, and changing demand patterns. These price swings could impact the profitability of export-oriented industries and potentially lead to job losses or reduced working hours.

In its monthly economic assessment, known as the Green Book, the Ministry of Economy and Finance acknowledged these challenges and emphasized the need for continued support for domestic demand to ensure a more balanced and sustainable economic recovery. The government has announced various measures to boost private consumption, including tax incentives for car purchases and expanded social welfare programs. Additionally, the Bank of Korea has kept its policy rate unchanged at a record low of 0.5% to support economic growth and stabilize financial markets.

In summary, while the South Korean economy has made progress in its recovery from the COVID-19 pandemic, there are ongoing challenges that could impact the pace and sustainability of the recovery. The weakness in domestic demand and the uncertainties surrounding global raw material prices are key concerns for policymakers, who are taking various measures to support the recovery and mitigate potential risks.