South Korea's Economic Growth Rate at 1.9% Next Year... "Exports of 13 Key Industries Expected to Decrease by 4%"

Industrial Research Institute '2023 Economic Industry Outlook' Report

[Image source=Yonhap News]

[Asia Economy Sejong=Reporter Dongwoo Lee] The Korea Institute for Industrial Economics and Trade (KIET) has forecasted next year's economic growth rate at 1.9%. It judged that the growth rate will decline compared to this year’s 2.5% due to the combined effects of reduced demand from the global economic slowdown and monetary tightening policies. Next year, the international oil price is expected to average $90 per barrel (approximately 121,400 KRW), and the won-dollar exchange rate is projected to average around 1,320 KRW.

According to the '2023 Economic and Industrial Outlook' report released by KIET on the 21st, the annual economic growth rate for next year was set at 1.9% due to the continuation of financial tightening by major countries to curb inflation and the full-scale consumption slowdown caused by uncertainties related to COVID-19.

The report presented forecasts for the macroeconomy and 13 key industries. KIET stated, "In 2023, the global economy will continue to face geopolitical uncertainties such as the confrontation between Europe and Russia related to the Ukraine crisis and the confrontation between the United States and China over Taiwan," adding, "The continuation of financial tightening by major countries to curb inflation and uncertainties related to COVID-19 will limit global economic growth."

Exports next year are expected to decrease by 3.1% compared to the previous year due to demand contraction and worsening semiconductor industry performance, despite improved price competitiveness from the stabilization of raw material prices and a weaker won. However, imports are expected to decline compared to the previous year, supported by domestic economic slowdown and stabilization of international oil and raw material prices. Considering the base effect, imports are projected to decrease by 5.1% year-on-year. As a result, the trade deficit is expected to significantly shrink to an annual $26.6 billion due to a relatively larger decrease in imports compared to exports. KIET anticipates this year’s cumulative trade deficit to be around 42.6 billion KRW.

The 13 key industries, which account for about 80% of South Korea’s exports, are expected to remain sluggish next year except for automobiles (2.5%), shipbuilding (42.4%), secondary batteries (17.3%), and biohealth (6.5%). The export value of key industries, which was $539.7 billion this year, is forecasted to decrease by 4.0% to $517.9 billion next year. Imports are expected to shift from an 8.0% increase last year to a 1.2% decrease due to price stabilization and domestic economic slowdown. Despite the downturn in major industries, the shipbuilding sector is expected to boom. Shipbuilding, which ranked first in global orders in the first half of this year, is seen as an opportunity for Korea, leveraging its advanced technology.

International oil prices, identified as the main cause of rising import costs, are expected to remain in the $90 per barrel range next year. This is due to the continued impact of interest rate hikes by major countries and the global economic slowdown. Dubai crude oil prices are projected to be $88.8 per barrel in the first half and $92.2 per barrel in the second half. However, concerns over worsening supply-demand conditions related to production cuts by major oil-producing countries may act as a factor limiting the decline in oil prices. The won-dollar exchange rate is expected to fall from 1,343.3 KRW in the first half to 1,295 KRW in the second half, influenced by the gradual narrowing of the interest rate spread between Korea and the U.S. as the year progresses.

Hong Seong-wook, a research fellow at KIET, said, "The outlook for next year was prepared assuming improvements in the COVID-19 situation and a return to normalcy, no further deterioration in the Russia-Ukraine war, and a shift in the U.S. monetary policy stance in the second half of next year," adding, "There is a possibility that the actual outcome could be more positive or negative than the forecast."

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