Market Update: Kospi topping 6,000 masks K-shaped divide in economy, economists warn – Full Analysis

 

K-pop, K-drama and now K-shaped economic growth — Korea has joined other countries experiencing a troubling trend signaled by uneven growth in the economy. Despite the Kospi surging past 6,000 to a record high on Wednesday, weak consumption and sluggish growth continue to hold the broader economy back.

  

K-shaped economic growth refers to an uneven trend in which some sectors and income groups recover and grow quickly while others continue to struggle or decline. 

 


 

Korea’s coincident index, which reflects current economic conditions, stood at 98.5 in December last year, remaining below the benchmark level of 100 for 19 consecutive months, according to the Ministry of Data and Statistics. 

  

In contrast, the leading index, which signals future economic trends, rose 0.6 points from November last year to 103.1. 

 

The 4.6-point gap marks the widest spread since February 2000 at the height of the so-called dot-com bubble, a period when financial markets moved far ahead of real economic conditions. 

 

The divergence suggests that market expectations have improved, while production, consumption and employment indicators remain subdued.

  

In fact, consumer spending continues to show weakness. 

 

Apartments are seen from Mount Namsan in central Seoul on Feb. 25. [NEWS1]

  

The retail sales index rose 0.5 percent last year, the first increase in four years, but the gain largely reflected the 11 percent jump in passenger car sales. Excluding automobiles, retail sales fell 0.7 percent, extending declines for a fourth consecutive year since 2022 and marking the longest downturn since data compilation began in 2010. Sales of goods such as clothing and footwear dropped 2.2 percent, while goods such as food and cosmetics fell 0.3 percent, shrinking for a third straight year.

 

Weak domestic demand has added pressure on small business owners and small- and medium-sized enterprises.

  

As of December last year, the delinquency rate on won-denominated loans at domestic banks reached 0.50 percent, returning to the 0.5 percent range for the first time since 2015. The rate has climbed for four consecutive years from 0.21 percent at the end of 2021. The delinquency rate on corporate loans rose to 0.59 percent, while small and medium-sized firms recorded 0.72 percent.

  

High interest rates and weak sales have reduced borrowers’ repayment capacity.

 

The composite business sentiment index for all industries came to 94.2 in February, up 0.2 points from the previous month but still below the long-term average, according to the Bank of Korea (BOK) on Wednesday. The composite business sentiment index is a survey-based indicator that measures overall business confidence across industries, reflecting how companies assess current conditions and their outlook for the near future.

 

A staff member sorts 50,000-won banknotes at Hana Bank’s Counterfeit Response Center in central Seoul on Feb. 24. [NEWS1]

 

Liquidity continues to flow into financial markets rather than the real economy. 

 

The total amount of money available in the economy grew 3.2 percent in December last year, while funds managed by financial firms such as securities companies and insurers increased 12.3 percent, according to the BOK. 

  

Economists warn that if capital continues to move into stocks instead of consumption and facility investment, recovery in the real economy could slow and asset gaps could widen.

 

“Favorable consumer sentiment and strong semiconductor conditions will likely lift this year’s growth rate significantly compared to last year,” said BOK Gov. Rhee Chang-yong.

  

Semiconductor exports reached $20.54 billion in January, up 102.7 percent from a year earlier. However, analysts caution that reliance on semiconductor exports could deepen disparities across industries and income groups, reinforcing a K-shaped recovery.

  

“I am not convinced that the rise in stock prices over the past year matches company profits and overall economic conditions,” said Yang Jun-seok, an economics professor at the Catholic University of Korea. “Policymakers should think carefully about their next steps, including whether to raise interest rates, and curb too much borrowing for stock investment to reduce the risk of a bubble and keep the economy stable.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.

BY KIM WON [[email protected]]