Industrial Research Institute "Next Year's Economic Growth Rate 3.2%... Exports Up 11.2%"

Export Rebound Expected Next Year... "Difficult to Predict" Regaining $60 Million After 3 Years
Exports of 12 Key Industries... Semiconductor 'Smooth Sailing', Display 'Sluggish'

[Image source=Yonhap News]

[Asia Economy Reporter Moon Chaeseok] The Korea Institute for Industrial Economics and Trade (KIET), a government-funded research institute, forecasted that despite uncertainties surrounding the novel coronavirus disease (COVID-19), South Korea's domestic economic growth rate will rise to 3.2% next year. This figure is 3.1 percentage points higher than the 0.1% projection released in June.

On the 25th, KIET predicted in its '2021 Economic and Industrial Outlook' report that next year's real Gross Domestic Product (GDP) will grow by 3.2% compared to this year.

However, the real GDP is expected to show a 'lower in the first half, higher in the second half' trend, with 2.9% growth in the first half and 3.5% in the second half.

This forecast is higher than those of the International Monetary Fund (2.9%), Korea Institute of Finance (2.9%), and Korea Development Institute (3.1%), but lower than the capital market projections such as the Korea Capital Market Institute (3.3%) and Goldman Sachs (3.6%).

Researcher Hong Seongwook of KIET's Trend and Statistical Analysis Division explained, "Next year, the domestic economy is expected to record a growth rate of around 3.2% compared to the previous year, influenced by the ongoing uncertainties of COVID-19, gradual improvements in domestic and external demand, and the base effect from this year's economic contraction."

Researcher Hong added, "Our analysis assumes that COVID-19 vaccines will be widely distributed in South Korea from the second half of next year and in advanced countries from the first half of next year."

Exports (based on customs clearance), private consumption, and investment demand are all expected to increase, but this is attributed to the base effect from this year's economy, which was contracted due to COVID-19.

Exports are forecasted to increase by 11.2% compared to this year. This is higher than the 3.3% estimate for this year (announced last November), which did not reflect the COVID-19 impact. This indicates a strong base effect from COVID-19 next year.

Although the export growth rate is expected to decrease slightly from 12.6% in the first half to 9.8% in the second half, the outlook for a 'V-shaped rebound' in exports next year has attracted attention.

The annual export value is projected at $560.8 billion. Achieving the historic $600 billion mark, first surpassed in 2018, is considered difficult.

Researcher Hong said, "It is difficult to comment precisely on whether exports will exceed $600 billion or not. Our forecast is around $560.8 billion annually."

This means that an institution representing the real economy has presented a more conservative estimate than the financial sector. Earlier, on the 20th, Bank of Korea Export-Import Bank President Visit Byung-gyu stated, "The Export-Import Bank will be at the forefront of reclaiming the $600 billion export milestone next year."

Imports are estimated to increase by 9.6% to $508.7 billion compared to this year. The trade surplus is expected to reach $52.1 billion, a 30% increase from last year's $40.2 billion.

KIET expects exports of sensitive industries among the '12 major industries' such as automobiles, refining, and petrochemicals to increase by more than 10%.

Thanks to increased demand for non-face-to-face services, information and communication devices, semiconductors, and secondary batteries are expected to grow by 9.9%, 13.1%, and 5.7%, respectively.

However, the display sector is forecasted to grow by 2.4% next year. Having experienced a significant decline this year, it is expected to find it difficult to make a substantial recovery next year.

Private consumption is expected to grow by around 3% compared to this year.

However, considering sluggish employment, increased household debt and housing cost burdens, concerns over slowing wage growth due to declining corporate performance, and the burden of additional government stimulus policies, the improvement is expected to be limited.

Researcher Hong explained, "The burden of additional government stimulus policies reflects an analysis considering whether fiscal expansion can be further increased next year."

Investment is expected to increase by 7% in facility investment and 3.2% in construction investment. Facility investment is projected to show steady growth centered on semiconductor market recovery and proactive investment demand in the ICT sector.

Construction investment is also expected to recover, mainly in civil engineering, influenced by the government's social overhead capital (SOC) expansion policies related to public infrastructure.

Researcher Hong said, "Uncertainty caused by COVID-19 remains the biggest variable next year. Externally, the recovery patterns of major economies, the continuation of stimulus effects, and the trajectory of US-China tensions are expected to act as additional variables."

He added, "Domestically, the effects of the Korean New Deal policy and the continuation of semiconductor and related equipment exports will also serve as variables."

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