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Economic Outlook KDI ECONOMIC OUTLOOK | UPDATE 2024.02 February 14, 2024

KDI ECONOMIC OUTLOOK | UPDATE 2024.02

February 14, 2024

background


The Korean economy is expected to record a 2.2% growth rate in 2024, in line with previous projections, as domestic demand is subdued with decelerating consumption and investment while the recovery of exports persists.
 

  • Private consumption is expected to increase by 1.7%, slightly below the previous forecast (1.8%), mainly reflecting slowdown in goods consumption. 
  •  Equipment investment is anticipated to grow by 2.3%, similar to previous projections, while construction investment (-1.4%) is expected to decline more than previously forecasted (-1.0%), reflecting a downturn in the real estate market.
  • Total exports are projected to increase by 4.7%, higher than the previous forecast (3.8%), reflecting a rebound in the semiconductor market and an upward revision of global economic growth rates.
  • The current account surplus is anticipated to be around $56 billion, exceeding earlier forecasts of about $43 billion, as domestic demand growth slows and export recovery expands.
  • Headline inflation is projected at 2.5%, slightly below the previous forecast (2.6%), mirroring the slowdown in domestic demand growth.
  • Despite slowing domestic demand, the number of employed persons is expected to grow by 220,000, closely aligning with the previous forecast (210,000), reflecting an increasing labor supply from women in their 30s and the elderly.


Ⅰ.  Current Economic Conditions

  • □ Despite subdued domestic demand, the Korean economy exhibits signs of a decelerating downturn, buoyed by the persistent recovery of exports.
  •   · GDP growth in Q4 2023 rose to 2.2% year-on-year and 2.5% on an annualized quarter-on-quarter basis, signaling a moderation in economic slowdown.
  •   · Conversely, domestic demand remains weak as evidenced by the continued low growth in private consumption and a decline in investment.
  •   · Even with a contraction in global trade, Korea's exports are on a positive recovery trajectory, supported by improvements in the semiconductor market.
  • □ On the external side, the risk of a hard landing in China and the US has lessened, slightly easing the negative outlook for the global economy.
  •   · The Chinese economy continues to experience sluggishness in the real estate market, yet the deceleration is mild, cushioned by government stimulus efforts.
  •   · The US economy continues high growth, contributing positively to Korea’s exports.
  • □ Given these domestic and global conditions, the Korean economy is expected to sustain a modest recovery, mainly propelled by exports, as forecasted in the H2 2023 KDI Outlook.
  •  

Ⅱ. Domestic Economic Outlook for 2024

1. Major Assumptions on External Conditions 

  • □ The forecast for the 2024 global economic growth rate has been marginally revised upward from earlier projections.
  •   · The IMF has recently projected a 3.1% global economic growth rate for 2024, marking a 0.2%p increase, centered on the US and China.
  •   · Nonetheless, it is anticipated that the global economic growth rate will not reach the average level of 3.5% recorded between 2011 and 2019.
  • □  Crude oil import prices (Dubai) in 2024 are assumed to be around $80 per barrel, similar to 2023.
  •   · With supply conditions showing signs of improvement, the assumption for oil prices in 2024 has been adjusted downward from $84 to $81 per barrel.
  • □ The Korean won, in terms of the real effective exchange rate, is assumed to remain little changed from recent levels.

2. Domestic Economic Outlook for 2024

  • □ The Korean economy is expected to record a 2.2% growth rate in 2024, in line with previous projections, as domestic demand is subdued with decelerating consumption and investment while the recovery of exports persists.
  •   ·The actual data of the second half of 2023 matched previous projections, with a similar growth trend expected for 2024.
  •   · Private consumption is expected to increase by 1.7%, slightly below the previous forecast (1.8%), mainly reflecting slowdown in goods consumption.
  •   · Equipment investment is anticipated to grow by 2.3%, similar to previous projections, while construction investment (-1.4%) is expected to decline more than previously forecasted (-1.0%), reflecting a downturn in the real estate market.
  •   · Total exports are projected to increase by 4.7%, higher than the previous forecast (3.8%), reflecting a rebound in the semiconductor market and an upward revision of global economic growth rates.
  •   · The current account surplus is anticipated to be around $56 billion, exceeding earlier forecasts of about $43 billion, as domestic demand growth slows and export recovery expands.
  • □ Headline inflation is projected at 2.5%, slightly below the previous forecast (2.6%), mirroring the slowdown in domestic demand growth.
  •   ·The core inflation rate (excl. food and energy) is also expected to be lower at 2.3% compared to the previous forecast (2.4%).
  • □ Despite slowing domestic demand, the number of employed persons is expected to grow by 220,000, closely aligning with the previous forecast (210,000), reflecting an increasing labor supply from women in their 30s and the elderly.
  •   ·The unemployment rate is forecasted to remain at 3.0%, the same as the previous projection.

3. Risks to the Outlook

  • □ The recovery of the Korean economy could weaken if geopolitical risks in the Middle East expand or China's economy experiences a sharp downturn, particularly in the real estate sector.
  •   · Should conflicts in the Middle East intensify, leading to rising oil prices and transportation disruptions, production costs may increase, thereby constraining the growth of the Korean economy. 
  •   · An economic recession in China stemming from a significant downturn in the real estate market could have adverse effects on Korea's exports.
  • □ Domestically, if the restructuring of insolvent construction firms does not proceed smoothly, there could be a deepening slump in construction investment.
  •   · The ongoing restructuring of insolvent construction firms is unlikely to lead to a financial system crisis, yet it is difficult to rule out the possibility that credit crunches could emerge in related sectors and negatively affect the real economy.
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