State think tank projects Korea’s econ to perform weakest ’23 since pandemic

State think tank Korea Development Institute (KDI) became latest to turn downbeat about next year’s economy due to depressed demand at home and abroad, slashing growth outlook to 1.8 percent from 2.3 percent last estimated in May.

Under revised outlook published on Thursday, KDI projected the Korean economy to slow to a pace of under 2 percent after 2.7 percent gain this year, slightly below earlier estimate of 2.8 percent.

“A growth of 1.8 percent would mean the economy would perform below its potential of around 2 percent and gear into the slowing mode,” said Jung Kyu-chul, a fellow at KDI.

Such economic motion would be the weakest after a 0.9 percent fall in pandemic-hit 2020, 0.8 percent gain in 2009 after global financial crisis and 5.1 percent contraction in 1998 under international bailout.

KDI projected exports to add 1.6 percent next year, performing just half of this year’s estimated growth of 4.3 percent.

Chip slump would weigh over exports, KDI said.

Domestic front is more dismal.

KDI expected private consumption and investment to contract sharply next year on high consumer prices and interest rates.

KDI forecast consumer prices to gain 3.2 percent next year, weakened from this year’s estimate rate of 5.1 percent but nevertheless above the mid to long-term inflation target of 2 percent.

KDI projected continued rate increases that would dampen consumption due to jump in debt financing cost.

KDI forecast oil prices to fall next year from this year. It projected Dubai crude prices to go down 15 percent to $85 per barrel next year from this year’s $98.

Job outlook likewise is gloomy.

Korea is expected to add 84,000 jobs next year, sharply down from this year’s estimated 791,000, KDI said.

The country’s current account surplus to further thin to $16 billion next year from $23 billion this year. Surplus from goods would reach $17 billion next year on stabilized oil prices while services, primary income account, and transfer income would record a deficit of $1.1 billion on recovery in international travel.

KDI advised the government to adjust the pace of fiscal tightening in light of the weak economy.

Prime Minister Han Duck-soo [Provided by Yonhap]

Prime Minister Han Duck-soo separately told reporters Thursday that the Korean economy would grow 2.6~2.7 percent this year and generate $26 billion in current account surplus.

The usually conservative KDI is the most skeptical of next year’s economy among major institutions.

The Organization for Economic Cooperation and Development (OECD) forecast 2.2 percent growth, International Monetary Fund 2.0 percent, and Asia Development Bank 2.3 percent. Korea Economic Research Institute expected 1.9 percent growth, Hana Institute of Finance 1.8 percent, and Korea Institute of Finance 1.7 percent.

The government and the Bank of Korea each forecast 2.5 percent and 2.1 percent, which would likely be revised down.

The global economic outlook has also worsened.

Korea Institute for International Economic Policy (KIEP) revised down growth in next year’s global economy to 2.4 percent from 3.6 percent. KIEP forecast 0.6 percent growth in the U.S. economy, 0 percent in European Union, 0.2 percent contraction in UK economy, 2.5 percent contraction in Russian economy, and 4.8 percent growth in Chinese economy.

“The global economy is walking on thin ice after the Russia-Ukraine war,” said Kim Heung-chong, president of KIEP. “Overall prices in the economy are on a surge as resource weaponization stimulates inflation.”