Korea’s growth to be weakest since crisis periods next year: economists

[Provided by Maekyung Media Group]

The South Korean economy’s growth pace could slow to 1 percent range next year, weakest since recession-hit crisis years, on expectations of the base rate reaching 3.75 percent to cause a crash in property market and exports shriveling from global-wide slowdown, economists forecast.

In an economic outlook seminar organized by the Federation of Korean Industries at its headquarters in Yeouido, Seoul, on Monday, Cho Dong-chul, economist of state-run think tank Korea Development Institute (KDI), projected the Bank of Korea would shave next year’s growth outlook to 1 percent range from current estimate of 2.1 percent.

“International Monetary Fund and other international organizations have been revising down global economic growth outlook for next year which bodes badly for the Korean economy that has been on export-led recovery after Covid-19.”

Slowed exports growth and sluggish consumption from the risk of souring in household debt due to high interest rates would weigh over the economy next year, he said.

The fizzling in housing bubbles formed during pandemic lush liquidity period could spill over to the economy, he warned.

Long-term charts show correlation in housing and consumer prices.

From 2020 to 2021, the gain in housing prices however exceeded the rise in headline consumer price index by more than 20 percent. Housing prices would normalize during high interest rates to cause correction in the housing market he said.

Park Seok-gil, head of financial market management at JP Morgan, also projected weakening in private spending that backed the rebound from pandemic upset.

“Economic growth last year and this year after the pandemic was led by domestic consumption,” Park said. “Spending next year will contribute less to growth.”

Economist agreed the BOK will keep up with rate increases next year.

“The top end of the base rate would likely reach 4.75 percent in the U.S. and 3.75 percent in Korea by early 2023, to keep the Korean won weak for some time,” Park said.

His bank projects the BOK will raise the key rate by 25 basis point for three straight meetings from November. The last time the Korean benchmark rate neared 4 percent was in November 2008.

Due to the multiple whammies, Korea’s growth would likely stop at around 1.5 percent next year, which would be weakest since the crisis-hit contraction years of 0.7 percent in 2000, 0.8 percent in 2009, and 5.1 percent in 1998.

By Ryu Young-wook and Lee Eun-joo