Hankyung Research Institute Forecasts 1.3% Economic Growth This Year: "Recovery Difficult Within the Year"

Domestic and Export Markets Expected to Both Experience Slowdown

This year, South Korea's economic growth rate is projected to be at a record low of 1.3%.

On the 11th, the Korea Economic Research Institute (KERI) forecasted in its 'KERI Economic Trends and Outlook: Q3 2023 Report' that South Korea's economic growth rate this year will be 1.3%. It assessed that it will be difficult for the severely sluggish economy to reverse its trend within the year, diagnosing that both domestic demand and exports will experience simultaneous downturns.

The 1.3% growth rate is the lowest figure excluding economic crisis periods such as the financial crisis (2009?2011) and COVID-19 (2020?2021). The analysis pointed out that the prolonged gradual deterioration of economic conditions, weakening growth momentum, and delayed economic recovery in major countries like China have combined to make a year-end economic rebound virtually impossible.

In the domestic sector, private consumption, which accounts for the largest share, is expected to grow by only 2.1%. It was analyzed that consumption conditions have been severely constrained due to stagnant nominal wage growth caused by poor corporate earnings and weakened real purchasing power due to high inflation, increasing downward pressure on domestic demand. Structural factors such as the increased burden of principal and interest repayments on household debt due to rapid interest rate hikes were also cited as factors limiting the recovery of private consumption.

Facility investment, which has continued to show negative (-) growth, is forecasted to contract by -2.3% due to the domestic demand slump and global economic slowdown, with all investments except semiconductors sharply decreasing. Construction investment is expected to decline by -0.7% due to unresolved risks such as construction delays in the building sector caused by rising raw material prices and instability from real estate project financing (PF) defaults.

Exports are also expected to grow by only 0.1%, as the anticipated reopening effect of China remains weak. However, the current account surplus trend is expected to be maintained as the decrease in imports due to domestic economic sluggishness exceeds the decline in exports. Due to weak demand and falling raw material prices, the consumer price inflation rate this year is projected to be 3.3%, which is 1.8 percentage points lower than in 2022 (5.1%).

Lee Seung-seok, a senior researcher at KERI, said, “The likelihood of China’s reopening expectations being realized within this year is very low,” adding, “If the failure of China’s economic rebound spreads to major trading partners such as the United States, there is a possibility that the growth rate could be even lower.” He also noted concerns about a sharp rise in delinquency rates and financial institution insolvency due to the prolonged economic recession and high interest rate environment. The researcher warned, “If financial market monitoring is not strengthened, unexpected shocks in the financial market could escalate into a crisis for the entire economic system.”

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