"Lowest Except Economic Crisis"... Hankyung Research Lowers This Year's Growth Forecast to 1.3%

Limited Impact of China's Reopening
Downward Outlook Inevitable Due to Worsening Export Slump

The Korea Economic Research Institute has revised this year's economic growth rate for Korea down to 1.3%, 0.2 percentage points lower than the initial forecast of 1.5%. This is the lowest growth rate excluding periods of economic crises such as the foreign exchange crisis (1998), the financial crisis (2009), and COVID-19 (2020).

On the 9th, the Korea Economic Research Institute cited the decline in consumption capacity due to the sharp rise in interest rates and the sluggish external sector caused by recessions in major countries as the reasons for lowering the growth rate forecast from 1.5% to 1.3%. They assessed that exports are declining as the expected reopening effect of China has been minimal amid continued contraction in consumption and investment due to high interest rates.

Private consumption, which accounts for the largest share in the domestic sector, is expected to grow by 2.1%. This is 2.2 percentage points lower than the 4.3% growth rate of private consumption in 2022. Private consumption, which showed a recovery trend due to expectations of economic recovery, has been shrinking as concerns over soaring inflation and economic slowdown have expanded through the first half of the year. The prolonged slump in self-employment has weakened the income base, and the burden of principal and interest repayments on household debt has surged due to interest rate hikes, significantly reducing consumption capacity.

Facility investment is expected to contract by -3.6% due to a decrease in external demand. The rise in capital procurement costs caused by interest rate hikes is also diagnosed as a limiting factor for facility investment. Despite an increase in government-led building construction such as public redevelopment, sluggish construction investment is expected to inevitably contract by -0.5% due to construction delays caused by soaring raw material prices and uncertainties stemming from real estate project financing (PF).

Thanks to the decline in international raw material prices and improvements in supply-demand imbalances, the consumer price inflation forecast for this year is 3.4%, which is 1.7 percentage points lower than 2022 (5.1%). This is due to the rapid stabilization of major raw material and energy prices such as international oil prices, despite increases in public utility fees such as electricity, water, and gas that have continued since last year.

Exports, which have driven economic growth so far, are expected to grow by only 0.1% as the anticipated reopening effect of China has been delayed. This is 1.1 percentage points lower than the initial forecast of 1.2%.

Lee Seung-seok, a senior researcher at the Korea Economic Research Institute, explained, “Exports have been sluggish because the reopening effect of China did not meet expectations, and as a result, domestic demand is also shrinking.” He added, “If the reopening effect does not properly materialize after the second half of the year, the growth rate is likely to decline further,” and expressed concern, saying, "If thorough management of debt risks is not carried out, there is a risk that an economic recession could escalate into an economic crisis."

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