Shipping containers are stacked at a port in Busan, Sept. 1, 2022. Yonhap

Despite solid exports, domestic demand remained weak in Korea to limit the improvement in the overall economic conditions, a state-run think tank said Monday.

"Korea's domestic demand has yet to exhibit signs of a recovery trend despite high growth in exports, resulting in a somewhat tepid improvement in overall economic conditions," the Korea Development Institute (KDI) said in a monthly economic assessment report.

This month's assessment was bleaker than its recent ones, as the think tank had pointed to an export-led recovery.

"As the high interest rate environment persists, domestic demand has not shown signs of recovery. Loan delinquency rates are rising, while retail sales, equipment investment and construction investment are all on the decline," the report read.

Retail sales, a gauge of private spending, shed 3.1 percent on-year, or a 0.2 percent on-month fall, in May due mainly to weak demand for clothes and cosmetic products.

Industrial output fell 0.7 percent on-month in May, though it logged 2.2 percent growth from a year earlier,

Facility investment sank 5.1 percent on-year, or a 4.1 percent decline on-month.

It marked the first time in 10 months that the industrial output, retail and facility investment indexes all lost ground in an on-month term.

The KDI's view differed a bit from the assessment by the government, which has said the country is on a recovery track and domestic demand is also expected to get better despite the adjustment in May.

Speaking of inflation, the KDI said the country is nearing its target rate of 2.0 percent.

"Due to weak domestic demand resulting from persistent high interest rates, core inflation came to 2.2 percent in June and high inflation eased in most items except for agricultural and petroleum products," the think tank said.

In June, consumer prices rose 2.4 percent on-year, the lowest level since July 2023, according to government data. (Yonhap)