Ⅰ. Current Economic Conditions
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The Korean economy is slowing down further due to sluggish exports as external conditions deteriorate. |
- GDP growth for Q4 saw a decrease of 0.4% quarter on quarter, driven by private consumption slowdown and export contraction.
- As the global economic downturn dragged down export by a huge falloff, especially in semiconductors, domestic demand had a limited recovery on persistent high inflation and interest rates.
- The global economy is slowing down with a decline in trade, and China is facing a temporary setback as the COVID-19 pandemic rapidly spreads after lifting restrictions.
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At the same while, there is growing anticipation for an economic recovery backed by improving economic sentiment in China and a gradual decline in inflation in major countries. |
- In light of favorable weather conditions in Europe and the widespread effects of stringent monetary policy, energy prices are decreasing and inflation in major nations is receding.
- Positive signals of future global economic recovery are emerging, including the weakening dollar due to declining expectations for a rate hike in the US and improved economic sentiment following China's resumed economic activity (reopening).
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The Korean economy is expected to experience a deeper slowdown in the first half of 2023, before gradually recovering in the latter half. |
- Due to China's resumed economic activity leading to a temporary increase in infections and economic contraction, the growth of the Korean economy in the first half may underperform the previous projection.
- Conversely, a rebound of China's economy may positively impact Korea's exports in the latter half, potentially driving economic growth beyond previous projections.
Ⅱ. 2023 Domestic Economic Outlook
1. Assumed External Factors
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The global economy is expected to slow down in 2023. |
- The IMF projects its world economic outlook in 2023 to fall from 3.4% in 2022 because of stringent monetary policies. However, its 2023 outlook has been slightly revised upward to 2.9% from the October projection of 2.7%, considering the effect of China's reopening efforts.
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Crude oil price (Dubai) is expected to drop by 17% from 2022 ($96 per barrel), marking around $80 per barrel in 2023. |
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The value of the Korean won, in terms of the real effective exchange rate, is expected to appreciate by about 4% in 2023, reflecting a weaker dollar in recent months. |
2. Domestic Economic Prospects
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Whereas the estimate for private consumption growth is slightly lower than the earlier outlook, the Korean economic outlook remains unchanged at 1.8% as the export slump eases due to the rebounding global economy. |
- The economy is expected to see a deeper slowdown in the first half of 2023 followed by a faster recovery in the latter half, keeping the annual growth outlook unchanged from the previous projection.
- Private consumption is projected to increase by 2.8%, lower than the previous projection (3.1%), due to the decrease in real income caused by the increase in public utility rates.
- Facilities investment is anticipated to rise by 1.1%, a slight upward revision from the previous projection (0.7%), due to improving external conditions. Meanwhile, the estimate for construction investment remains unchanged.
- Exports are expected to see a 1.8% increase, up from the previous projection (1.6%), mainly driven by the growth of service exports resulting from a surge in Chinese tourists and China’s reopening.
| □ | The current account surplus is projected to reach $27.5 billion in 2023, higher than the earlier projection ($16.0 billion), reflecting the upward adjustments in export growth as well as terms of trade driven by falling oil prices (a larger decrease in import prices). |
| □ | Despite the downward adjustment of global oil prices, headline inflation is expected to reach 3.5% in 2023, up from the previous projection (3.2%), due to the deferred impact of supply-side inflationary pressure on public utility rates. |
| □ | The number of employed is anticipated to rise by 100,000 in 2023, up from the earlier projection (80,000), reflecting the growth in the domestic face-to-face service industry backed by China’s reopening. |
3. Risks to the Outlook
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Suppose sustained economic recovery in China or extended rate hikes against persistent high inflation, and it may hamper the pace of economic recovery in Korea. |
- Considering the potential impact of China’s economic recovery on Korea’s rebound in the latter half, if China’s efforts to contain the spread of COVID-19 prove ineffective or if a setback in the real estate market causes a ripple effect on economic activity, Korea may experience a slower-than-anticipated growth due to a delayed recovery in exports.
- In the event that the decline in inflation slows due to risks like the escalating Ukraine crisis, US-led global trends in monetary policy may get tighter, destabilizing financial markets and limiting the pace of recovery in the world economy.
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Domestically, if the decline in the real estate sector spills over into the real economy, Korea’s economic growth could be hindered, particularly inprivate consumption and construction investment. |
