BOK "Domestic Growth Rate 1.4% This Year → 2.1% Next Year → 2.3% Year After Next" (Summary)

Next Year's Growth Rate Forecast Revised Down by 0.1%p
Next Year's Inflation Rate 2.6%, Revised Up by 0.2%p

The Bank of Korea has revised its forecast for next year's real Gross Domestic Product (GDP) growth rate down by 0.1 percentage points to 2.1% compared to its projection in August. The consumer price inflation rate for next year was raised by 0.2 percentage points to 2.6%, and the core inflation rate was also expected to rise by 0.2 percentage points to 2.3%.

In its economic outlook report released on the 30th, the Bank of Korea stated, "This year's growth rate is expected to be 1.4%, in line with the August forecast. Next year, although improvements will continue mainly in exports and facility investment, the momentum for domestic demand recovery is weakening, so the growth rate is expected to be 2.1%, 0.1 percentage points lower than the previous forecast."

The Bank of Korea's growth forecast for next year is lower than that of the Ministry of Economy and Finance (2.4%) and the Organisation for Economic Co-operation and Development (OECD, 2.3%), but is the same as the International Monetary Fund (IMF), Asian Development Bank (ADB), and Korea Development Institute (KDI). It is higher than the Korea Institute of Finance (2.1%) and the Korea Institute for Industrial Economics and Trade (2.0%). Previously, in August, the Bank of Korea maintained this year's growth rate at 1.4%, the same as in May, but lowered next year's growth rate from 2.3% to 2.2%, and now, just over three months later, it has lowered the forecast again.

Bank of Korea Governor Lee Chang-yong explained at a press briefing that "The OECD raised its forecast for Korea's growth rate next year from 2.1% to 2.3% by 0.2 percentage points yesterday, which reflects higher growth rate predictions for the United States and China, Korea's major trading partners, compared to the Bank of Korea. It seems they also expect our exports to improve further."

The Bank of Korea expects that the economy, which was sluggish at the beginning of the year, improved in the second half mainly due to exports, resulting in an annual growth rate of 1.4%, in line with initial expectations. Next year, the improvement trend is expected to continue, supported by a recovery in exports and facility investment, but the momentum for domestic demand recovery, such as consumption and construction investment, is weakening, so the forecast (2.2%) is expected to be slightly below the previous projection.

Looking at the Bank of Korea's economic outlook by sector, the private consumption growth rate is expected to be 1.9% for both this year and next year. This is a downward revision of 0.1 percentage points and 0.3 percentage points, respectively, compared to the August forecast. The export growth rate forecast for goods this year was raised from 0.7% to 2.3%, and the facility investment growth rate forecast was also revised upward from -3.0% to -0.4%.

The Bank of Korea also raised its consumer price inflation forecast for this year from 3.5% to 3.6%, and for next year from 2.4% to 2.6%. The core inflation rate forecast (excluding food and energy) for this year was raised from 3.4% to 3.5%, and the forecast for next year was also increased from 2.1% to 2.3%.

Choi Chang-ho, head of the Bank of Korea's Research Department, said, "Consumer price inflation is expected to decline significantly in November. If oil prices do not rise sharply again, inflation is expected to gradually slow to around 3% in the first half of next year and average 2.6% for the entire year."

The Bank of Korea also presented its economic outlook for 2025 for the first time, forecasting an economic growth rate of 2.3% and a consumer price inflation rate of 2.1% for the year after next.

Current Account Surplus Expected to Expand to $49 Billion Next Year

The current account surplus is expected to expand significantly from $30 billion this year to $49 billion next year. The Bank of Korea stated, "In the second half of this year, the current account surplus expanded considerably compared to the first half as exports improved amid a continued decline in imports. The surplus is expected to continue next year, supported by a recovery in global trade."

The Bank of Korea forecast that the increase in the number of employed persons will gradually slow to 340,000 this year and 240,000 next year. The unemployment rate is expected to rise from 2.7% this year to 2.9% next year. Considering that the August forecast projected employment increases of 290,000 this year and 190,000 next year, and unemployment rates of 2.9% this year and 3.0% next year, this represents some improvement. The Bank of Korea added, "Although the momentum for domestic demand recovery is weakening, leading to a slowdown mainly in the service sector, labor supply from women and the elderly continues, so the slowdown is expected to be more gradual than initially anticipated."

Furthermore, considering the high uncertainty in the future outlook, the Bank of Korea presented two alternative scenarios related to raw material price trends and the global manufacturing economy.

The first scenario assumes that geopolitical conflicts intensify again, causing raw material prices to rise and secondary ripple effects to expand, which could lower next year's growth rate to 1.9%. In this case, inflation is expected to exceed the baseline forecast (2.6%) and rise to 2.8%.

The second scenario assumes a rapid rebound in the global manufacturing economy, including semiconductors, which would strengthen the recovery trend in exports and investment, resulting in a growth rate of 2.3% next year. Inflation is also estimated to rise to 2.8% in this scenario.

Kim Woong, Deputy Governor of the Bank of Korea, emphasized, "The economy is expected to gradually improve, led by exports supported by a rebound in the semiconductor sector, but domestic demand will show a slower recovery than initially expected due to the effects of monetary tightening. Although inflation is generally slowing, the inflationary pressure is expected to remain above the target level for a considerable period, so we must continue to pay close attention to inflation risks."

[Image source=Yonhap News]

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