Global investment banks have presented a pessimistic outlook for the Korean economy, anticipating that GDP growth will persist in the 1-percent range until 2024 due to a sluggish rebound in exports.
The Korea Center for International Finance (KCIF) compiled data revealing that eight major international investment banks projected an average growth of 1.9 percent for the Korean economy next year. This is in comparison to the projected 1.1 percent growth for this year.
However, these forecasts fall below the projections made by significant Korean economic institutions. Both the Bank of Korea (BOK) and the Korea Development Institute anticipate that the country’s economy will grow by 2.3 percent in 2024.
Among the eight investment banks, Barclays, Bank of America Merrill Lynch, and Goldman Sachs predicted that Korea might achieve GDP growth of over 2 percent next year. Nonetheless, more pessimistic forecasts from the remaining five banks brought down the average estimate.
This marks the first time since 1954, when relevant data collection began, that the Korean economy is projected to grow in the 1-percent range for two consecutive years.
Between 2000 and 2019, the nation’s GDP exhibited growth every year, reaching 9.1 percent in 2000. However, due to the COVID-19 pandemic, the economy contracted by 0.7 percent in 2020 before rebounding to 4.3 percent the following year. Growth further slowed to 2.6 percent in 2022.
Initially, the economy was expected to reach its lowest point in the first half of 2023 and subsequently embark on a path to recovery during the latter half. However, the gloomy forecasts have raised concerns that the real economy may not experience a robust rebound throughout the upcoming year.
According to the Bank of Korea’s data, the Korean economy achieved a growth rate of 0.9 percent in the first half of the current year. The central bank revised its growth forecast in May, reducing the GDP growth outlook for the latter half of the year to 1.8 percent. The central bank’s prediction for 2023’s GDP growth is 1.4 percent.
Despite some optimistic perspectives from the government, the Korean economy remains exposed to several risk factors, including the slump in exports and weak private consumption.
Data from the Korea Customs Service illustrates that exports have been declining for more than ten consecutive months. In July, Korea’s exports dropped by 16.5 percent compared to the same period last year, significantly impacted by a prolonged semiconductor market downturn and falling petrochemical product prices.
Another concern centres around the uncertain trajectory of private consumption. After contracting by 0.3 percent in the fourth quarter of 2022, the figure has been recovering on a quarterly basis. Economic growth rebounded to 0.3 percent in the first quarter and extended to 0.6 percent in the second quarter.
While private consumption has partly offset the decline in exports in the first half of the year, concerns arise over its potential to sustain momentum, as indicated by BOK data. Private consumption increased by 0.6 percent in the first quarter compared to the previous quarter, but growth diminished to a mere 0.1 percent in the subsequent quarter.
Economists have noted that the future trajectory of exports will largely determine Korea’s GDP growth. “Fortunately, Korea’s GDP still has room for a rebound after hitting a low in the second quarter, as semiconductor exports are showing signs of recovery, even if consumption will not be able to achieve a resilient recovery,” remarked Lim Hye-yoon, an economist at Hanwha Investment & Securities.