Korean construction investment fell 0.2% quarter-on-quarter in Q2 2024, the only major GDP component to decline as exports and consumption drove 0.6% overall growth. The contraction stemmed from delayed government construction project execution and supply disruptions of some materials due to Middle East conflict impacts, according to the Ministry of Economy and Finance. The government slashed its 2024 construction investment growth forecast from 2.4% to 0.2% this month, reflecting persistent weakness despite a low base effect from last year's 9.7% annual plunge.
Real GDP expanded 0.6% in Q2 2024, with private consumption up 0.4%, government consumption up 0.2%, facility investment up 0.2%, and intellectual property investment up 3.3%, data from the Bank of Korea and the Ministry of Economy and Finance showed. Exports and imports rose 1.4% and 0.8% respectively. Construction investment declined 1.9% year-on-year in Q1 and 1.3% in Q2, extending the 9.7% annual drop recorded in 2023.
Government Slashes 2024 Construction Investment Forecast to 0.2%
The Ministry of Economy and Finance revised its 2024 construction investment growth projection to 0.2% from an initial 2.4% forecast announced in early 2024, a downward adjustment of 2.2 percentage points. The ministry's 2025 construction investment growth estimate stands at 0.8%. The government attributed Q2 weakness to supply chain disruptions for certain construction materials caused by the Middle East conflict and delays in executing government construction projects, despite earlier emphasis on accelerating fiscal spending to support the economy.
SOC budget allocation for 2024 totals 27.7 trillion won including supplementary budgets, up 1.7 trillion won from 26 trillion won in 2023. The government expects semiconductor facility construction by Samsung Electronics and SK Hynix, along with expanded SOC budget execution, to ease the sector's weakness in the second half of 2024.
Construction Orders Surge 55.3% Year-on-Year in May
Construction orders jumped 30.7% year-on-year in Q1 2024, followed by increases of 55.7% in April and 55.3% in May. Building permit area, another leading indicator, fell 5.0% year-on-year in Q1, 0.2% in April, and 12.6% in May. Construction orders typically exhibit high monthly volatility depending on large project awards and require considerable time to translate into actual investment.
Construction Cost Deflator Climbs 5.5% Year-on-Year in May
The construction completion deflator, which tracks construction cost trends, accelerated from 2.8% year-on-year in March to 4.9% in April and 5.5% in May. Price surges for materials including asphalt, driven by raw material cost increases and elevated import prices amid Middle East instability and high exchange rates, fueled the acceleration. The Korea Development Institute stated that rising construction costs may constrain investment recovery with a time lag. Hyundai Research Institute noted that while construction orders show improvement, the conversion from orders to groundbreaking to completion involves delays, and recovery remains limited due to high construction costs, ongoing project financing distress, high inflation, high exchange rates, and high interest rates.
FAQ
What caused Korean construction investment to fall in Q2 2024?
Construction investment declined 0.2% quarter-on-quarter in Q2 2024 due to delayed government construction project execution and supply disruptions of some materials caused by Middle East conflict impacts, according to the Ministry of Economy and Finance.
How much did the government lower its 2024 construction investment forecast?
The Ministry of Economy and Finance revised its 2024 construction investment growth forecast to 0.2% from an initial 2.4%, a downward adjustment of 2.2 percentage points, announced this month.
What is driving construction cost increases in Korea?
The construction completion deflator rose 5.5% year-on-year in May, driven by price surges for materials including asphalt amid raw material cost increases and elevated import prices due to Middle East instability and high exchange rates.
