Industrial Research Institute "Growth Rate 0.1% This Year... Exports -9.1%"

"Government GVC Reform, Diversify Alternatives Beyond Reshoring"

Jang Ji-sang, President of the Korea Institute for Industrial Economics and Trade. / Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Moon Chaeseok] The Korea Institute for Industrial Economics and Trade (KIET), a government-funded research institute, forecasted that South Korea's economic growth rate will record 0.1% this year. This outlook aligns with the government's projection and reflects a more optimistic view compared to international organizations that predicted a negative growth. KIET advised that the global value chain (GVC) restructuring policy to be announced by the government next month should not focus solely on increasing reshoring companies.

KIET made these remarks during the '2020 Second Half Economic and Industrial Outlook' briefing held at the Government Complex Sejong on the 22nd. The briefing was attended by Hong Seongwook, Head of Trend Analysis Office, and Senior Research Fellow Jo Cheol.

KIET expects the domestic economic growth rate to be 0.1% and annual exports to decline by 9.1% this year. Earlier, on the 1st, the government lowered its growth forecast for the Korean economy from 2.4% to 0.1%. Although this is a significant downgrade, it remains more optimistic than analyses such as the OECD's -1.2% forecast.

Director Hong said, "Even if COVID-19 resurges in the second half, if lockdowns and economic shutdown measures do not occur, the damage could be less than in the first half," adding, "Conversely, if COVID-19 spreads again in the second half, uncertainty will increase."

He anticipated that the reduction in exports in the second half will inevitably lead to a decrease in the trade surplus. However, this forecast was made based on the assumption that countries like China have entered a phase of COVID-19 containment, and it is difficult to consider it as fully reflecting the possibility of a second pandemic.

Industries such as automobiles and displays are expected to perform poorly. In particular, automobile exports fell to around 100,000 units last month, the lowest in 17 years.

According to KIET's estimated export growth rates by industry for the first half announced that day, automobiles declined by 29.8%, petroleum by 29.3%, and displays by 26.6%, indicating severe downturns.

The automobile sector is expected to suffer due to the global economic slump caused by COVID-19, petroleum due to high oil price volatility, and displays due to intensified competition from China.

Senior Research Fellow Jo explained, "The decline in automobile exports is difficult to compensate for even by stimulating domestic demand," adding, "The export performance of parts suppliers is much worse than that of finished car manufacturers. The key is how well the production base can be maintained during the COVID-19 period. From this perspective, the government needs to expand financial support for automobile parts companies in the second half."

He advised that the GVC restructuring policy to be announced by the government next month should not be excessively focused on inducing reshoring. While policy alternatives are necessary because countries worldwide are pursuing reshoring, fundamentally, a comprehensive GVC restructuring response policy should be presented.

Senior Research Fellow Jo said, "If overseas countries pursue reshoring, South Korea may inevitably face situations where it has to move operations abroad," adding, "Ultimately, rather than focusing solely on attracting reshoring companies, a multifaceted GVC restructuring approach should be implemented simultaneously."

Meanwhile, KIET forecasted that oil prices will average $42 per barrel and the exchange rate will be in the 1,200 won per dollar range this year. Private consumption is expected to decrease by about 2% compared to the previous year. Facility investment is projected to increase by 1.8%, while construction investment is expected to decline by 0.8%.

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