National Institution's Warning: "Growth This Year May Drop to Early 1%"

KDI, 2023~2024 Domestic Economic Outlook
"Economy Expected to Remain Weak in the Second Half"

The Korea Development Institute (KDI) expressed concerns that if China's economic recovery is delayed, South Korea's economic growth rate this year could fall to the low 1% range.

On the 11th, KDI released its "2023-2024 Domestic Economic Outlook," stating this. Jeong Gyu-cheol, head of KDI's Economic Outlook Office, said, "If the semiconductor sector or China's economic recovery deviates from KDI's expectations, achieving the growth rate of 1.5% we mentioned may be difficult," adding, "Considering the level of risk, in a negative scenario, a growth rate in the low 1% range, rather than 1.5%, is quite possible."

KDI forecasted that South Korea's economy will grow by 1.5% this year, with exports shrinking mainly due to the semiconductor sector. This is a 0.3 percentage point downward revision from the February forecast of 1.8%. The growth rate for next year is expected to reach 2.3%.

KDI expects the economy to grow by 0.9% in the first half of this year, followed by 2.1% growth in the second half due to the impact of China's economic recovery and easing semiconductor sector weakness. The first half growth rate was lowered by 0.2 percentage points from the initial forecast of 1.1%, and the second half was revised down from 2.4% to 2.1%, a 0.3 percentage point decrease.

Jeong explained, "The biggest reason for the downward revision is the semiconductor sector downturn," adding, "The situation is slightly worse than when we made the forecast in February, and the pace of semiconductor sector recovery in the second half may be slower than initially expected, so we lowered the growth rates for both the first and second halves."

Exports of goods in the first half are expected to decrease from the February estimate of $313 billion to $306 billion, and in the second half from $337 billion to $332.2 billion, resulting in a total export value of $638.2 billion for the year. This is a $11.8 billion (1.85%) downward revision from the February forecast of $650 billion. Conversely, the import forecast for this year was revised upward from $628.4 billion to $633 billion.

Private consumption is constrained by the high inflation and high interest rate environment but showed strong growth this year centered on service consumption due to increased travel demand. It is expected to moderate next year. Private consumption is projected to increase by 3.0% in 2023 as travel demand gradually recovers, and to grow by 2.5% in 2024, exceeding the economic growth rate. However, since overseas consumption by domestic residents is not included in domestic value added, the contribution of private consumption recovery to economic growth may be smaller than usual.

Jeong said, "Although it is said that our economy will show a 'low in the first half and high in the second half' pattern this year, I do not think the economy will be good in the second half," adding, "The economy will still be weak in the second half, but please understand it as 'relatively better than the first half'."

(Photo) [Image source=Yonhap News]

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