Korean economy to slow down further in H1 2023: Fin Min

[Photo by Yonhap]

The South Korean economy is projected to grow at a slower pace next year than the government’s previous outlook of 2.5 percent as it faces multiple headwinds from high inflation and volatile financial markets, the country’s top economic policymaker said Tuesday, although dismissing concerns about a potential crisis.

“Korea will be for sure affected by the predominant outlook of a slowdown in economy next year,” Deputy Prime Minister and Finance Minister Choo Kyung-ho told reporters Tuesday, local time, in a press conference in New York, the United States. “(The economy will face even more hardships) in the first half of next year.”

Choo met with reporters as he arrived in New York for a presentation about the Korean economy to investors before heading to Washington D.C. to attend the Group of 20 (G-20) meeting of finance chiefs and central bankers on Oct. 12-13 and the International Monetary Fund and Financial Committee (IMFC) conference on Oct. 14.

“It is likely that (hardships) will go on until next year,” Choo said, projecting that economic growth for next year would stay below the government’s previous outlook of 2.5 percent as uncertainties and volatility in financial and foreign exchange markets have increased due to high inflation and monetary tightening.

Choo, however, dismissed excessive anxiety, saying that hardships are not to an extent that Korea will be under foreign currency shortage in short term or financing difficulty as were the case in previous crises.

“There is remote chance of a crisis emerging such as a currency crisis,” Choo said, citing relatively robust foreign reserves, credit default swap (CDS) premium, and short-term foreign debt compared with 2008 global financial crisis. The economy is also projected to grow, not contract.

“We are able to endure at current levels but we don’t know whether uncertainties will build up, which is why we are in emergency system mode,” the minister said.

Some global factors that the Korean government is paying attention to the most include the Russia-Ukraine war, the U.S. intensive monetary tightening and soft landing for normalization, on top of China risk at home.

A possible economic crisis in the United Kingdom also poses risk to Korea with 70 percent of its domestic economy dependent on trade given the country’s “massive economic territory.”

“It would be a structural approach to raise growth potential of our economy that is in basic declining trend and to prevent systematic risk and short-term crisis environment,” Choo said.

When it comes to soaring consumer prices, Choo expected inflation to peak in October but it will still remain high for a while, citing international oil prices and Russia-Ukraine war-led supply setback.

Choo did not elaborate on a possible currency swap with the U.S. amid the won’s weakening but noted the two countries have built strong trust on “economic and financial cooperation.”

“We are ready for cooperation anytime with regards to foreign exchange market in times of liquidity crunch and increased uncertainty,” the minister said.

Choo also talked about the controversy surrounding lower taxes on the rich, saying that the basic idea “is to encourage companies to expand investment and promote research and development” by cutting corporate tax.

When it comes to the U.S.-China conflict, Choo said that Korea cannot give up exports and that it will “place priority on Korea-U.S. alliance while at the same time continue to maintain economic partnership with China.”

[ㄏ Maeil Business Newspaper & mk.co.kr, All rights reserved]