South Korea's economy stalls despite stimulus, KDI warns

An apartment construction site in Busan Yonhap — An apartment construction site in Busan/ Yonhap

SEOUL, July 8 (AJP) - South Korea’s economy continues to lose steam despite the rollout of a supplementary budget earlier this year, the state-run Korea Development Institute said in its latest monthly report, highlighting persistent weakness in the construction sector and mounting external pressures.

In its July economic trends report released Tuesday, the institute offered a downbeat assessment of the economy’s trajectory, stating that growth indicators remained “at a similarly subdued level as in the previous month.”

“The Korean economy remains at a similarly subdued level as in the previous month, due to continued weakness in the construction sector and worsening external conditions,” the report said.

The KDI’s gloomy appraisal marks the third consecutive month it has flagged a slowdown, underscoring concerns that May’s supplementary budget — which prioritized disaster recovery efforts — has failed to generate a significant rebound.

The warning comes at a fraught moment for Asia’s fourth-largest economy.

With exports under mounting strain, U.S. President Donald Trump has threatened to impose a 25 percent tariff on all South Korean goods starting Aug. 1 — a move that would strike at the heart of the nation’s trade-driven growth model.

At home, the government is preparing a second supplementary budget, this time centered on direct stimulus measures, including unprecedented “cash-like” coupon distributions to households.

While the KDI acknowledged continued strength in semiconductor exports — a bright spot amid otherwise softening manufacturing activity — it noted that overall production momentum had slowed. In particular, auto exports, already under pressure from U.S. tariff threats, have declined for a second straight month.

Manufacturing output fell 3.0 percent month-over-month in May, with automotive production slipping 2.0 percent. Construction, which has been a persistent drag, showed little sign of recovery.

Despite the weak indicators, the report pointed to a rebound in consumer sentiment as a potential source of near-term support.

The consumer sentiment index jumped to 108.7 in June, up sharply from 101.8 in May, suggesting a possible turnaround in domestic demand as the government readies further stimulus.

The KDI expressed cautious optimism that the second supplementary budget — unlike the first, which was narrowly targeted — may help stabilize momentum in the months ahead.

Still, analysts warn that without a resolution to external risks, including the trade tensions with the Trump administration, any domestic recovery may prove fragile.

Kim Dong-young davekim0807@ajupress.com