Government diagnoses signs of recovery in domestic demand

For the fourth consecutive month, the government has noted signs of a potential revival in domestic demand while monitoring the economy. However, due to the prolonged slump in domestic demand, national research institutes have lowered their growth forecasts for this year, with some cautioning that it is still too early to be optimistic about a recovery.

In the August issue of "Recent Economic Trends" released on Friday, the Ministry of Economy and Finance assessed that "our economy is currently showing signs of a gradual recovery in domestic demand, particularly in facility investment, alongside strong exports and manufacturing. The overall economic recovery trend appears to be continuing." The government, which first identified "signs of domestic demand recovery" in May of this year, has maintained this perspective for four consecutive months.

Kim Gwi-beom, head of the Economic Analysis Department at the Ministry of Economy and Finance, said, "Real wages have increased for two consecutive months, and key indicators such as the number of tourists visiting Korea and credit card sales have shown improvement since the beginning of the year. Additionally, the consumer sentiment index is at its highest since April 2020."

However, there is a discrepancy between the government's outlook and external organizations such as the Korea Development Institute (KDI). In its "Economic Outlook Revision" released on Aug. 7, KDI lowered its growth forecast for this year from 2.6% to 2.5%, citing weaker-than-expected domestic demand as a factor hindering economic recovery. This revised forecast is lower than the 2.6% growth rate the Ministry of Strategy and Finance projected in June.

The government also acknowledges that it is too early to definitively state that the domestic economy is on the path to recovery. Kim noted, "It is premature to call it a recovery, which is why we use the term 'signs of recovery.' Once constraints on domestic demand, such as high interest rates and inflation, ease in the second half of the year, we may then be able to declare a recovery in domestic demand."

Ha Jun-kyung, a professor in the Department of Economics at Hanyang University, expressed caution, saying, "Although prices have stabilized somewhat, real income has lagged over the past two years, which does not create favorable conditions for a domestic demand recovery. It is too early to be optimistic about a recovery in domestic demand."


세종=송혜미 기자 1am@donga.com