The Korea Development Institute (KDI) has maintained its economic growth forecast for South Korea at 2.2 percent for this year. However, it has slightly lowered its forecast for private consumption, citing prolonged high interest rates as a contributing factor.
According to the “Economic Outlook” released by the KDI on Feb. 14, the real gross domestic product (GDP) for this year is forecast to grow by 2.2 percent. This prediction remains unchanged from the forecast issued in November last year. By half-year periods, the growth is projected to be 2.3 percent in the first half and 2.0 percent in the second half.
The KDI’s forecast aligns closely with the government’s 2.2 percent and the Bank of Korea’s 2.1 percent projections. The International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) have forecasted South Korea’s economic growth rate for this year at 2.3 percent and 2.2 percent, respectively.
While maintaining its previous forecast, the KDI pointed out discrepancies across sectors. It anticipates robust recovery in exports, particularly driven by semiconductors, but foresees weaker growth in domestic demand.
The KDI has raised its forecast for the total export growth rate from the previous 3.8 percent to 4.7 percent, marking a 0.9 percentage point increase. It has also adjusted its projection for the current account surplus, expanding it by US$13.6 billion to US$56.2 billion compared to the previous estimate. On the other hand, it has assessed that domestic consumption weakness is deepening. Private consumption is expected to increase by 1.7 percent, down from the previous forecast of 1.8 percent. Both goods consumption and services consumption are sluggish, with goods consumption, particularly sensitive to interest rates, expected to be more subdued.
The forecast for the facility investment growth rate was also revised down by 0.1 percentage point to 2.3 percent. Due to the recent downturn in the real estate market, construction investment is expected to decrease by 1.4 percent, leading to a larger downward adjustment compared to the previous forecast of -1.0 percent.
Consumer prices are expected to rise by 2.5 percent this year, representing a 0.1 percentage point decrease from the previous forecast. The KDI has predicted that the inflationary trend would slow down rather quickly compared to the previous forecast due to weak domestic demand. In particular, inflation is expected to decrease from 2.9 percent in the first half to 2.3 percent in the second half, approaching the price stabilization target of 2.0 percent by the end of the year.
Given the government’s announcement of executing fiscal spending at the highest level ever in the first half of the year, the KDI has noted that such a trend persisted in previous years, suggesting that it would not have a significant impact on inflation.