ADB "China Reopening Effects Soon Visible... South Korea's Economy to Recover from Second Half"

by Lee Dongwoo

by Song Seungseop

Published 20 Apr.2023 12:09(KST)

The Asian Development Bank (ADB) has forecast that the South Korean economy will begin to recover in the second half of the year, supported by the effects of China's reopening and the recovery of the global semiconductor industry cycle.

Yothin Jinjarak, ADB Senior Economist, said in an interview with Korean reporters on the 18th (local time) in Manila, Philippines, "As the global cycle of the international semiconductor industry improves and recovers in the latter half of the year, it will have a positive effect on South Korea's semiconductor and electronics industries," adding, "China's reopening is expected to increase demand for manufactured goods, especially electronic products, from the second half of the year."

He explained, "The increase in South Korean manufacturing exports due to the lifting of China's COVID-19 lockdowns and the rise in Chinese tourists are expected to have a positive impact on South Korea's economic growth," and added, "Since China's lifting of lockdowns was implemented in December last year, the positive effects have not yet been reflected but will appear soon."

Yothin Jinjarak, Senior Economist at the Asian Development Bank (ADB)

Economist Jinjarak stated, "According to the most recent data, China's economic growth rate in the first quarter of this year shows a strong trend," and analyzed, "The year-on-year growth rate recorded 4.5%, and both China's March retail sales and exports exceeded market expectations." He further projected, "China's reopening policies seem to be progressing smoothly, and strong consumer demand in China will contribute to increased South Korean exports in the future."

However, he pointed out that the economic weakness in advanced countries is a negative factor. He said, "Imports from advanced countries account for half of South Korea's exports, and the weakened demand in these countries will act as a factor that dampens South Korea's economic growth," adding, "Recent monthly data also reflect this export weakness." He also explained, "While the economic growth of developing countries in Asia is recovering, the growth rates of advanced countries are clearly slowing down," and predicted, "Both the United States and Europe are expected to show growth rates below 1% this year."

Uncontrollable inflation, financial market instability due to high interest rates, and disruptions in food and energy supply chains were mentioned as factors weakening the global economy. Economist Jinjarak repeatedly warned, "If these global economic risk factors materialize, they could exert downward pressure on the South Korean economy, which is highly dependent on trade."

Economist Jinjarak said, "China's lifting of COVID-19 lockdowns contributes to increased external demand, and the global semiconductor market has bottomed out and will gradually recover from the second half of this year," adding, "China's reopening has so far been mainly limited to the service sector, so there has not been a significant positive spillover effect on South Korea, but from the second half of the year, demand for manufactured goods, especially electronic products, is expected to increase."

However, he noted, "Higher interest rates, a weak housing market, and weakened consumer sentiment are expected to burden domestic demand, and the slowdown in growth rates of advanced countries and the sluggish trend in global semiconductor sales will be obstacles to economic growth."

In response to a question about whether the sharp rise in global oil prices could negatively affect South Korea's inflation, he explained, "With China's demand expanding and global supply constraints continuing, oil prices are expected to rise during the year," adding, "The average price this year is expected to be $88 per barrel. This is 12% lower than last year's average, and thus oil prices are generally expected to act as a downward factor for inflation compared to last year."

Finally, Economist Jinjarak commented on measures for the South Korean government to stimulate the economy and reduce future risks, stating, "The advancement of aging will act as a factor hindering South Korea's economic growth potential," and "The rapid increase in the elderly population will structurally burden fiscal soundness." He analyzed, "Efforts such as promoting automation to offset the decline in the workforce, providing incentives to attract skilled immigrant workers, and implementing various policies to maintain and expand employment among the elderly population will likely be necessary."