Korea's OECD Leading Economic Index Rises for 19 Consecutive Months, Ranks First Among Major Economies

August CLI Hits 102.87, Highest Since May 2021

Ministry of Economy and Finance: "Robust Economic Recovery Continues"

The Organization for Economic Cooperation and Development (OECD) reported that Korea's Composite Leading Indicator (CLI) has risen for 19 consecutive months, marking the highest level among major global economies. The index's continued rise, attributed to a boom in the semiconductor sector and improvements in terms of trade, suggests that Korea's economy may maintain a growth trajectory surpassing its long-term trend. However, there are increasing concerns that the recent sharp decline in the index’s rate of increase, along with rising international oil prices and market interest rates, could impede further economic expansion.

According to the OECD on September 13, Korea's CLI last month stood at 102.87, the highest level in five years and three months since May 2021 (102.88).

The OECD CLI is an indicator designed to detect economic turning points at an early stage and is generally used to gauge economic trends six to nine months in advance. An index reading above the standard line of 100 indicates that the future level of gross domestic product (GDP) will likely be higher than the long-term trend, while a reading below 100 suggests the level may fall short of the trend.

Korea's CLI fell to 99.14 in January of last year, but began to rebound from February. After surpassing the baseline of 100 in November of last year with a reading of 100.12, the upward trend continued.

Last month, Korea's CLI topped the list among the 17 countries for which the OECD released data. This is the first time Korea has ranked first in these rankings in six years and three months, since May 2020.

The climb up the rankings was also rapid. As recently as September of last year, Korea was ranked 16th among the 17 countries, but it rose to third place in February of this year, and in July, overtook Mexico to reach second place. Last month, Korea surpassed Brazil, which had maintained the top spot for eight months, reaching the highest level.

The recent increase in the index is analyzed to be driven by improvements in terms of trade amid a robust semiconductor market. Terms of trade are calculated by dividing export prices by import prices; they improve when export prices rise faster than import prices. As semiconductor prices continued to rise and international oil prices had not yet surged sharply, Korea faced relatively limited import cost pressure, resulting in improved terms of trade.

However, the pace of growth in the CLI has clearly slowed in recent months. The month-on-month increase in Korea's CLI, as released by the OECD, was 0.43 points in March, 0.41 points in April, 0.37 points in May, 0.28 points in June, 0.15 points in July, and 0.06 points in August—declining for five straight months.

Dramatic changes in external conditions have also emerged as variables. Amid escalating conflict in the Middle East, international oil prices exceeded 100 dollars per barrel. If oil prices remain elevated for an extended period, import prices may rise, which could worsen terms of trade that have thus far supported the CLI's increase.

Interest rate burdens are mounting as well. Concerns over inflation in the United States and the possibility of an interest rate hike by the Federal Reserve have driven up U.S. Treasury yields, and domestic market interest rates have followed suit. On September 11, the yield on Korea’s three-year government bonds surpassed 4% for the first time since November 2023. The yield on 10-year government bonds also rose to its highest point since October 2022.

The government maintains that the economic recovery trend is ongoing. In its recently published September issue of the "Latest Economic Trends" (Green Book) report on September 11, the Ministry of Economy and Finance assessed that "the robust pace of economic recovery is continuing" in the domestic economy.

This content was produced with the assistance of AI translation services.