| Citizens shops for vegetables at a discount supermarket in Seoul, June 15, amid high inflation. Yonhap |
The economy is at risk of losing steam as deteriorating external economic conditions are feared to dent investment and export growth amid high inflation, the finance ministry said Friday.
Market volatility and global economic downside risks further expanded due to the Federal Reserve's accelerating monetary tightening and global supply chain disruptions, the ministry said in its monthly economic assessment report, called the Green Book.
"Amid a continued buildup in price pressure, there are concerns about an economic slowdown due to sluggish investment and a faltering recovery of exports," the report said.
The government presented a bleaker assessment than the previous month amid growing concerns about stagflation, a mix of slowing growth and high inflation.
Inflationary pressure has rapidly built up amid soaring oil and commodity prices, caused by the protracted war between Russia and Ukraine, and the recovery in demand.
Korea's consumer prices jumped 5.4 percent year-on-year in May, the fastest rise in almost 14 years and a jump from a 4.8 percent spike in April.
Market volatility heightened over fears of the Fed's aggressive monetary tightening and concerns about a global economic recession, with Seoul's stocks and currency falling sharply this week.
On Wednesday (local time), the Fed raised its key rate by 0.75 percentage points, the sharpest hike since 1994, to tame surging inflation; and signaled it could raise the rate by a similar margin next month.
| Watermelons are displayed at a discount supermarket in Seoul, June 16. Yonhap |
Exports, the main driver of economic growth, rose 21.3 percent in May, extending their gains for a 19th month. But high fuel costs drove up the country's import costs, resulting in a trade deficit for the second straight month.
The finance ministry said exports are not likely to post double-digit growth in June, given fewer working days and the fallout of a truckers' strike on logistics.
"It is hard to emphatically say the economy has entered a downturn, but the government has raised cautions about a possible economic slowdown," Lee Seung-han, a financial ministry official, told a press briefing.
The government report showed sales at department stores and card spending grew at a faster pace in May than the previous month amid relaxed virus curbs.
Card spending rose 16.4 percent year-on-year last month, marking the 16th straight month of gains. The reading accelerated from a 13.8 percent increase in April.
Sales at department stores increased 20.8 percent, higher than a 15.6 percent rise in April; but domestic sales of autos dropped 5.4 percent, extending their fall into a third month.
The finance ministry unveiled its new economic policy plan Thursday that centers on deregulation and tax cuts in a bid to support private sector-led economic growth.
The government lowered its 2022 economic growth outlook to 2.6 percent from its December estimate of 3.1 percent, while sharply raising this year's inflation outlook to a 14-year high of 4.7 percent from 2.2 percent. (Yonhap)