KDI warns of economic growth slowing to 2.8% this year and 2.3% 2023

State think tank Korea Development Institute (KDI) cut economic growth outlook to 2.8 percent and raised inflation forecast to 4.2 percent for this year in a harbinger of government and central bank’s moderation in forecast from spike in commodity prices.

Under the revised outlook published on Wednesday, the state institution projected the Korean economy to grow 2.8 percent this year, slower than 3.0 percent last estimated in November.

Growth is expected to further ease to 2.3 percent next year as export’s robust growth would begin to slow down from deteriorating global trade conditions, it said.

The institute usually reflecting the government outlook placed growth slightly higher than 2.5 percent forecast by the International Monetary Fund, but below 3.0 percent estimated by Organization of Economic Cooperation and Development and Asia Development Bank.

Growth target is set at 3.1 percent by the government and 3.0 percent by the Bank of Korea. The BOK is expected to issue revised outlook on May 26.

KDI said it cut this year’s economic growth forecast as private consumption stayed subdued in the first quarter. Also, exports, the main driver of the country’s economic growth, faces worsening challenges from surging global oil and other commodity prices as well as monetary tightening by major central banks.

The institute projected corporate investment to remain sluggish throughout this year but domestic consumption to rebound on removal of social restriction measures and government’s extra budget.

KDI sharply raised its inflation forecast to 4.2 percent from 1.7 percent projected in November.

KDI said the inflationary pressure is increasing from surging oil and commodity prices on top of supply chain bottlenecks and economic slowdown.

[Photo by MK DB]

Inflation is expected to peak in the second or third quarter and ease in the fourth quarter to near the 2 percent target in the second half of next year through monetary tightening, said Jung Koo-cheol, economic outlook team director at KDI.

KDI projected the country’s current account surplus to shrink sharply to $51.6 billion this year from $88.3 billion of last year on spike in import cost. The surplus is forecast to rise slightly to $60.2 billion next year.

The country is expected to add 600,000 new jobs this year as life returns to normal to create more job openings at conventional businesses. The employed count, however, is expected to fall by 120,000 next year versus this year’s large addition.

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