Korea to cut ’23 growth outlook to 1% range, ’22 econ to fall under OECD average

[Photo by MK DB]

The South Korean government will agree with the central bank in grimmer outlook for next year’s economy by projecting the economy to underperform the potential growth rate of 2 percent, but won’t likely revise the tax revenue estimate that has been the basis for a tighter budgetary outline for 2023.

According to the Ministry of Economy and Finance on Monday, the government will lay out next year’s economic policy direction and outlook in December. It is expected to shave the estimate to under 2 percent for next year from 2.5 percent proposed in June.

The Bank of Korea has cut next year’s growth outlook to 1.7 percent from previous 2.1 percent, joining the state think tank Korea Development Institute who projected a growth rate of 1.8 percent.

A growth of sub-2 percent would the economy’s weakest apart from the extraordinary crisis times of the pandemic year of 2020, the wake of global financial crisis in 2009, and in 1998 under international bailout from Asian liquidity crisis.

The government outline will picture sluggish economic activities across the board including smaller job increases.

The government however won’t change tax revenue outlook.

In its budget proposal submitted to the National Assembly in September, the government expected tax revenue to total 400.457 trillion won ($298.9 billion) in 2023, up 0.8 percent from this year’s estimated total.

It estimated income tax at 131.86 trillion won, corporate tax 105 trillion won, and value-added tax 83.2 trillion won.

The government in November hinted that it could revise its tax revenue outlook in November to reflect deteriorating household and corporate income conditions.

The economy already has been performing poorly compared with other developed economies of the Organization for Economic Cooperation and Development (OECD).

The Korean economy in the July-September period hardly grew, adding just 0.3 percent from the previous quarter, below the 0.4 percent OECD average to perform 13th out of 29 countries, showed OECD report.

Korea’s annual growth would likely underperform OECD average this year, which would be the third case after last year and 1998.

Weak growth owes to the sharp retreat in chip demand from China.

According to data from Korea International Trade Association on Monday, Korea’s chip exports to China reached $42.025 billion between January and September, accounting for 40.6 percent of entire exports.

Chip exports have sharply fallen from subdued demand from China as the result of economic slowdown and localization of chips.

Korea’s monthly chip export growth that has been on a steady decline this year turned to negative territory in August. Chip exports from January to September fell 19.1 percent from the same period last year.

Outbound shipments of chips to China fell 16.3 percent during the same period amid fall in demand for server-use chips on sluggish Chinese economy and decline in memory chip prices.