Korea’s real gross domestic product (GDP) is expected to rise by 2.0 percent next year from this year, according to the state-run Korea Institute for Industrial Economics and Trade (KIET) in its 2024 Economic and Industrial Outlook report released on Nov. 20. The relatively conservative forecast is lower than the Korean government’s forecast of 2.4 percent, as well as 2.2 percent by the Bank of Korea (BOK), the Korea Development Institute (KDI) and the International Monetary Fund (IMF).
The KIET said overall exports and capital expenditures will increase thanks to a recovery in the IT industry, but growth will be modest as high interest rates and inflation will slow consumption growth and construction investment will contract in Korea.
Exports are expected to rise 5.6 percent in 2024 from 2023, thanks to a big improvement in the sluggish semiconductor market and steady automobile exports. Exports are expected to fall 7.6 percent in 2023 due to slumps in semiconductor exports and exports to China, but rebound next year.
Next year’s imports were expected to fall 0.7 percent from 2023 due to lower oil prices, despite higher imports of intermediate goods due to an increase in exports. The country will run a trade deficit of US$13.6 billion this year but a surplus of US$26.5 billion next year, the KIET forecast.
However, high interest rates, expanding interest burdens due to high household debt, and weakening purchasing power due to high prices will impede growth with private consumption rising only 1.9 percent year on year in 2024. As for investment, while capital expenditures in sectors such as semiconductors and automobiles will inch up, construction investment is expected to shrink 0.2 percent from this year due to an increase in unsold properties and weak leading indicators for new construction permits.
Exports are expected to increase in most of Korea’s 13 main industries next year, including semiconductors (15.9 percent), information and communication devices (12.7 percent), shipbuilding (10.2 percent), and bio-health (4.6 percent), thanks to the base effects of rising demand for global information technology (IT) products, pharmaceuticals, and ships.
Display exports are expected to swell by 2.2 percent year on year, driven by the supply of organic light-emitting diode (OLED) displays for tablets to major corporate customers. However, the KIET noted that China’s increasing competitiveness in display exports can be a negative factor for Korea’s exports, which had been leading the premium market.
Automobiles, which had been an export driver amid a slump in Korea’s semiconductor exports this year, were expected to continue to grow, although an export growth rate of nearly 20 percent this year will slow down significantly to 2.0 percent next year due to a drop in electric vehicle sales. Despite overall export growth, exports of secondary batteries, which have taken a breather due to the global slowdown in electric vehicle sales, are expected to edge down by 2.6 percent due to shrinking demand.
By region, demand in major exporting countries such as the United States and Europe was expected to grow slightly due to accelerated infrastructure construction and supply chain internalization following the implementation of the Inflation Reduction Act (IRA). In China, on the other hand, demand growth except for semiconductors was expected to be slow as downward pressure from real estate would remain despite large-scale stimulus policies in China, making most industrial sectors of Korea continue to suffer a slump in their exports to China, the KITE said.
“While facing structural difficulties such as China’s rising self-sufficiency in intermediate goods and weakening Korean competitiveness in the Chinese import market, Korea might see prolonged sluggishness in its exports to China due to economic factors such as a delayed recovery of the Chinese economy and a slump in the global IT industry,” the KIET said.
On the other hand, the United States might overtake China as Korea’s number one export market as Korea’s exports to the United States will continue to grow steadily, the KIET conservatively forecast.