Experts are anticipating that the economic growth rate for South Korea will reach 2.2 percent this year. This aligns with the forecasts presented by the government and the International Monetary Fund (IMF), both indicating a 2.2 percent growth. It slightly surpasses the Bank of Korea’s projection of 2.1 percent.
In its report titled “2024 Revised Outlook for the South Korean Economy” released on Jan. 28, the Hyundai Research Institute projected an annual real gross domestic product (GDP) growth rate of 2.2 percent. The forecast includes a first-half growth of 2.3 percent and a second-half growth of 2.1 percent.
The institute has assessed that there is a growing sense of optimism about the expected recovery as the South Korean economy experiences a downturn primarily driven by external factors.
It has noted that the Cyclical Component of the Coincident Index declined for the sixth consecutive month to 98.9 in November of last year. However, the Cyclical Component of the Leading Index, which reflects the future direction of the economy, has shown continuous growth for seven months since April of the same year, reaching 99.9.
The institute has anticipated that consumption in specific sectors may face limitations in recovery due to sustained high inflation and high interest rates, leading to a decrease in real disposable income.
For construction investment, there is a forecast of a decline in growth rate due to weak leading indicators and issues such as difficulties in real estate project financing.
In the construction sector, the Business Survey Index (BSI) for financial performance is falling below 100, and simultaneously, the debt ratio of construction companies is expanding. This is leading to a deterioration in financial soundness and funding conditions for construction firms.
The institute has indicated that the financial strain on construction companies is expected to persist due to the deterioration in real estate project financing. Additionally, it has stated that the perception of the construction business environment is likely to worsen further this year.
Facility investment is expected to face challenges with no strong rebound, attributed to the erosion of corporate investment capacity due to high interest rates, accumulated debt, and a delay in the recovery of investment sentiment.
The institute pointed out that risks such as economic differentiation and increased exchange rate volatility could escalate amid a delayed improvement in companies’ perception of export recovery.
Domestic exports have been on a positive trajectory since the fourth quarter of last year. However, in November of the same year, the Export Diffusion Index, a leading indicator, stood at 50, while the Export Outlook BSI, a perceived indicator, recorded 76, falling below the baseline of 100.
Employment recorded historic lows and highs last year, with an unemployment rate of 2.7 percent and an employment rate of 62.6 percent, respectively. However, there was a trend of differentiation, particularly in the health and social welfare services sector, focusing on women and the elderly. As a result, it is expected that the polarization of the job market and a shortage of high-quality employment opportunities will lead to a situation where satisfactory numerical indicators are not perceived.