The Organization for Economic Cooperation and Development (OECD) has raised its global economic growth forecast for this year, but lowered its economic growth forecast for South Korea. While the organization said that global trade markets such as markets of semiconductors and information technology (IT) devices are showing signs of an improvement, it raised a concern about a slump in construction and consumption.
According to South Korea’s Ministry of Strategy and Finance, the OECD released its interim economic forecast on Feb. 5, setting 2.2 percent as its forecast for Korea’s economic growth in 2024. This was a drop of 0.1 percentage point from 2.3 percent which it forecast in November last year. The OECD forecast that South Korea’s economic growth will be unchanged at 2.1 percent, which it forecast before.
As for the growth of the global economy, on the other hand, the OECD was more optimistic. The OECD raised its forecast for global growth this year by 0.2 percentage points to 2.9 percent. It expected the U.S. economy to grow by 0.6 percentage points to 2.1 percent. Its forecast on the growth of the Chinese economy remained unchanged at 4.7 percent. “There is a sign of improvement in semiconductor, IT device, and auto sales and a recovery in demand for air passenger services,” the OECD said.
The OECD did not explain why it lowered its economic growth forecast on South Korea in its economic outlook. “The OECD’s economic growth forecast on South Korea is the result of a convergence with the projections made by the South Korean government in its 2024 Economic Policy Direction,” the ministry said. The South Korean government and the Korea Development Institute (KDI), like the OECD, projected South Korea’s economic growth to reach 2.2 percent this year. The Bank of Korea (2.1 percent) and the International Monetary Fund (2.3 percent) have similar forecasts on the growth of the South Korean economy.
Experts say that a slump in domestic consumption and the sluggish South Korean construction industry are hindering economic growth. According to the Bank of Korea, private consumption growth was 1.8 percent in 2023, a significant drop from 4.1 percent in 2022. This year, consumption has continued to slump due to high inflation and interest rates. Construction investment in the fourth quarter of 2023 was also down by 4.2 percent from the same period a year earlier. This is due to a downturn in the construction industry including the collapse of real estate project financing (PF).
Political unrest in the Middle East are also a risk factor for the South Korean economy. “Inflation is likely to rise due to geopolitical risks in the Middle East and elsewhere,” the OECD said. China’s economic unrest is also a big factor. China is a key market for South Korea’s exports, including semiconductor exports. While exports to China recovered in January, there is still a risk that the rebound will be short-lived if China’s economy does not recover. The OECD warns that China’s economic growth is likely to slow down due to weakened consumer sentiments, an inadequate social safety net, high debt and a slump in the Chinese asset market.