This Year's Economic Growth Forecast Raised to 3.8%...Exports Lead the Recovery

Korea Economic Research Institute Releases Q2 Economic Trends and Outlook Report
Q1 Forecast Increased by 0.4%p from 3.4%

Data provided by Korea Economic Research Institute

[Asia Economy Reporter Kim Heung-soon] There is a forecast that this year's economic growth rate will rise to the high 3% range. It is analyzed that the export boom due to the rapid recovery of the global economy will lead the overall economic recovery trend.

The Korea Economic Research Institute (KERI) under the Federation of Korean Industries (FKI) announced this on the 9th through the economic trend and outlook report for the second quarter of this year. In the previous first quarter report, the economic growth rate for this year was forecasted at 3.4%, but with recent significant export increases driving economic recovery, the growth rate forecast was revised upward by 0.4 percentage points to 3.8%.

Exports Lead Economic Recovery This Year Due to Global Economic Recovery
Private Consumption Shows Slow Recovery Due to Weakened Income Base and Delayed Vaccine Distribution

KERI predicted that the expanding growth trend of exports (goods + services) will lead domestic growth this year. Exports, which recorded a negative growth of -2.4% last year, are expected to significantly expand this year as trade volume surpasses pre-COVID-19 levels due to large-scale economic stimulus measures by major countries and active vaccine distribution.

Moreover, not only the semiconductor supercycle but also improved trade conditions such as the recovery of international oil prices, and export increases in non-core items like biohealth, are expected to expand the growth rate up to 9.6%.

Private consumption is forecasted to grow by only 2.3%, as the weakened household income base and repayment burdens from rapidly increased household debt restrict smooth consumption recovery, while downside factors such as the prolonged fourth wave of COVID-19 and delayed vaccine distribution have a combined impact.

Facility Investment Shows Robust 9.0% Growth Due to Export Boom
Construction Investment Recovers from Slump, Turning Positive

Facility investment is also analyzed to record steady growth influenced by the export boom. Aggressive investments in the semiconductor and IT sectors continue, and investments in eco-friendly fields are also on the rise, leading facility investment to show a high growth rate of around 9.0%.

Construction investment is expected to turn positive with a growth rate of 2.1%, recovering from last year's slump due to large-scale housing supply measures. However, KERI forecasts that actual construction investment recovery will be limited and only occur in the second half of the year due to scattered building regulations and opposition to public reconstruction projects.

Consumer Price Inflation Forecasted to Rise 1.8%
Current Account Surplus of $85.7 Billion, Won-Dollar Exchange Rate Expected at 1,130 Won
"Stabilization of COVID-19 and Active Vaccine Distribution Are Prerequisites"

Consumer price inflation is expected to rise sharply from 0.5% last year to 1.8% this year. The high price increases in agricultural, livestock, and fishery products continue, and upward pressure on prices is exerted by expectations of economic recovery, the recovery of international oil prices, and rising housing costs such as rent, leading inflation to approach the price stability target of 2% at around 1.8%.

KERI forecasts the won-dollar exchange rate to be around 1,130 won. This estimate considers the ongoing quantitative easing policy of the U.S. Federal Reserve, persistent concerns about tapering (asset purchase reduction), increased possibility of U.S. inflation, and stronger-than-expected U.S. economic recovery, which are factors strengthening the dollar. It also takes into account that factors such as yuan appreciation and domestic economic recovery act simultaneously as downward pressures limiting the dollar's strength.

KERI further explained that effectively responding to the resurgence of COVID-19 and accelerating vaccine distribution are the most important variables for this year's economic growth. If the current resurgence trend stabilizes within the first half of the year and herd immunity is formed within this year through active vaccine distribution efforts, the current favorable growth trend can continue. Conversely, if not, the growth rate may remain in the low 3% range.

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