KDI Lowers This Year's Growth Rate from 1.5% to 1.4%

KDI Economic Outlook
South Korea's Economic Growth Rate This Year Revised from 1.5% to 1.4%
Next Year's Forecast Adjusted from 2.3% to 2.2%

The Korea Development Institute (KDI), a government-funded research institute, has downgraded its forecast for South Korea's economic growth rate this year from 1.5% to 1.4%. The growth rate forecast for next year was also lowered by 0.1% to 2.2%. The assessment is that the prolonged high interest rate environment is slowing domestic demand growth, delaying South Korea's economic recovery.

In the ‘Economic Outlook’ released on the 9th, KDI projected this year’s economic growth rate at 1.4%. In the revised forecast from August, it had predicted 1.5% growth for the Korean economy this year, so this is a slight downward adjustment. The economic growth forecast for next year was also lowered by 0.1% from the previous estimate to 2.2%.

The main reason for the downward revision is the weakening growth of domestic demand. Jung Kyu-chul, head of KDI’s Economic Outlook Office, explained, “The high interest rate environment has slowed domestic demand growth, reflecting a downward adjustment in growth rates for consumption and investment.” This forecast matches those presented by the Bank of Korea and the IMF (2.2%) but is 0.2 percentage points lower than the government’s official forecast (2.4%).

KDI projected next year’s private consumption growth at 1.9%, lower than the previous forecast of 2.5%. The ongoing high interest rate environment combined with oil price instability is judged to further reduce consumption capacity. Jung explained, “Although the high interest rate environment was the same in August, it is expected to last longer, causing market interest rates themselves to rise significantly, which is reflected in consumption and investment.” The increased volatility in oil prices is also seen as restricting consumption and investment. In August, KDI had forecast next year’s international oil price at $75 per barrel, but this has now been raised to $85 per barrel.

This year’s consumer price inflation rate was also raised by 0.1 percentage points to 3.6%. Next year’s inflation forecast was raised by 0.1 percentage points to 2.6%. Due to the slowdown in domestic demand growth, prices are expected to stabilize next year compared to this year, entering the 2% range. Core inflation is also expected to decrease from 3.5% this year to 2.4% next year due to weaker demand.

KDI recommended continuing a tightening policy to achieve the inflation stabilization target of 2%. However, since inflation rates are not as high as in major countries such as the United States, it explained that there is no need to adopt a similarly high interest rate stance as those countries. Jung said, “Currently, it does not seem necessary to immediately stimulate consumption, so a tightening stance appears to be appropriate.”

The total export forecast for next year was lowered from 4.0% in August to 3.8%. However, exports, centered on semiconductors, are showing a moderate recovery, so merchandise exports next year are expected to increase by 3.5%, slightly higher than the 3.4% forecast in August. However, the increase in tourists due to China’s reopening is slow, so service exports are not being supported.

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