Bleak Outlook for South Korea's Economy Next Year, Growth Rate Forecasted at 1.8%

Except for the Economic Crisis, 1% Growth Rate for 2 Consecutive Years is a First
Domestic Demand Slump and Real Estate Risks May Hold Back Growth
Next Year's Economic Growth Rate Also Expected to Decline

There is a forecast that South Korea's economic growth rate will remain in the 1% range for the second consecutive year. On the 25th, LG Economic Research Institute projected in its '2024 Macroeconomic Outlook' that South Korea's economic growth rate will rise from 1.3% this year to 1.8% next year. Excluding economic crisis situations, it is expected to record a growth rate below 2% for two consecutive years for the first time.

[Image source=Yonhap News]

The institute stated, "Since the turmoil of the Korean War, growth rates below 2% have only appeared during crisis situations such as the foreign exchange crisis and the global financial crisis," adding, "Next year's growth rate falling below 2% for two consecutive years will heighten concerns about the entrenchment of low growth." The 1.8% growth rate forecasted by the institute for next year is lower than projections from other domestic organizations. The Bank of Korea forecasts 2.1%, the Ministry of Economy and Finance 2.4%, and the International Monetary Fund (IMF), Korea Development Institute (KDI), and Asian Development Bank (ADB) all project 2.2% growth. This is the first time an institution has forecasted a growth rate in the 1% range.

The institute expects it will be difficult to feel a recovery in the economy due to sluggish domestic demand such as consumption and investment. The report stated, "With the policy stance focused on strengthening fiscal soundness and national debt management, it is difficult to expect active government responses in terms of monetary and fiscal policies, so the strength of the economic rebound is also expected to be weak." In particular, it pointed out that risks related to real estate project financing (PF) will surface due to the contraction in the construction market, including construction orders and building permits. It also drew a line, saying that it will be difficult for the won-dollar exchange rate to return to the 1100 won level as in the past.

Next year, the global economic growth rate is also forecasted to be 2.4%, lower than this year's 2.9%. The institute said, "2024 will be the year when the global economy officially enters an 'L-shaped long-term low growth' phase."

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