'Yoon 1 Year' Shaky Korean Economy... 1% Growth This Year Also at Risk

KDI, Bank of Korea, and Ministry of Economy and Finance Lower Growth Forecasts
Initial 1% Growth Outlook May Be Revised Downward
Semiconductor Slump, Export Deterioration... Uncertainty Persists in Second Half

President Yoon Suk-yeol is greeting as he steps onto the podium to deliver a congratulatory speech at the opening ceremony of the 56th Annual Meeting of the Asian Development Bank (ADB) held on the 3rd at Songdo Convensia in Incheon.
[Image source=Yonhap News]

As exports, which have supported the Korean economy, continue to deteriorate, there is an analysis that even '1% growth' this year will not be easy.

According to related ministries on the 7th, the Bank of Korea, the Ministry of Economy and Finance, and the Korea Development Institute (KDI) will announce South Korea's economic growth rate forecasts from this week until next month.

KDI will announce economic forecasts including this year's growth rate on the 11th, and the Bank of Korea will release a revised economic outlook along with the base interest rate decision on the 25th. The Ministry of Economy and Finance will disclose the economic policy direction for the second half of this year at the end of next month.

Although there may be differences among institutions, there is a high possibility of downward revision from the initial growth rate forecasts. In KDI's case, it presented a growth rate forecast of 1.8% for this year in November last year and maintained it in February, but this time a slight downward adjustment is expected.

Earlier, the International Monetary Fund (IMF) also revised South Korea's growth forecast down by 0.5 percentage points to 1.5% compared to October last year, while raising the Asia-Pacific region's growth forecast from 4.3% to 4.6% in its Asia-Pacific Regional Economic Outlook report released earlier this month.

Krishna Srinivasan, Director of the IMF Asia and Pacific Department, attended the Asian Development Bank (ADB) Annual Meeting held in Songdo, Incheon on the 4th and held a press conference, pointing out that "South Korea has been affected in exports due to the slowdown in growth of its trading partners and the global semiconductor downcycle over the past few quarters."

He added, "Past monetary policy tightening and fiscal policy normalization following large-scale economic stimulus last year are impacting domestic demand," and said, "High interest rates have played an important role in the continued adjustment of housing prices. Housing prices are also acting as a factor suppressing domestic demand."

With concerns about a global economic recession, the worsening semiconductor market and high interest rates combined are expected to cause the Korean economy to remain sluggish for the time being.

Busan Port Area [Image Source=Yonhap News]

The Bank of Korea is also likely to revise down its existing forecast of 1.6% through the economic outlook announcement on the 25th of this month.

Bank of Korea Governor Lee Chang-yong already hinted at the possibility of downward revision of the 1.6% forecast at last month's monetary policy meeting, and in an interview with a foreign media held at Songdo Convensia, Incheon on the 3rd, he said, "I expect South Korea's economic growth rate this year to be slightly lower than the initial forecast of 1.6%."

The Ministry of Economy and Finance will announce the revised forecast through the 'Economic Policy Direction for the Second Half of the Year' at the end of next month. The growth rate forecast for this year presented by the Ministry in the '2023 Economic Policy Direction' in December last year was 1.6%.

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said at the ADB Annual Meeting on the 4th, "When we forecast economic growth in December last year, we projected a relatively low 1.6% compared to other institutions," and added, "The forecasts from major institutions including the IMF currently coming out are not significantly different from the government's initial forecast."

However, Deputy Prime Minister Choo said, "Some institutions are making minor adjustments, and the government will make a final judgment by comprehensively reviewing economic data and institutional views during the process of reviewing the economic policy direction for the second half of the year," not ruling out the possibility of following the downward revision trend.

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho is answering reporters' questions at a press conference announcing the outcomes of the 56th Annual Meeting of the Asian Development Bank (ADB) held on the afternoon of the 4th at Songdo Convensia in Yeonsu-gu, Incheon.
[Image source=Yonhap News]

The biggest reason the Korean economy is shaking like this can be found in export sluggishness.

According to the Ministry of Trade, Industry and Energy, the monthly trade balance has recorded a deficit for 14 consecutive months since March last year. This is the longest period of deficit since the 29-month consecutive trade deficit from January 1995 to May 1997.

Looking at the export-import trends announced on the 1st, April exports amounted to $49.62 billion, down 14.2% compared to April last year. The cause is the sluggish semiconductor sales, which are the core of Korea's exports, due to the freezing semiconductor market. Samsung Electronics posted an operating loss of 4.58 trillion won in the semiconductor (DS) division in the first quarter of this year.

Because of this, some voices express concern that even the initially forecasted '1% growth' for Korea may not be guaranteed.

Global credit rating agency Standard & Poor's (S&P) presented a growth forecast of 1.1% for the Korean economy on the 3rd, and Citi predicted it would record 0.7%, below 1%. In particular, Nomura forecasted that Korea would not be able to avoid negative growth (-0.4%) this year.

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