KERI cuts growth forecast to 1.5% for Korea in 2023

KERI cuts growth forecast to 1.5% for Korea in 2023 [Photo by MK DB]

The Korea Economic Research Institute (KERI) on Friday revised down its growth forecast for South Korea to 1.5 percent in 2023 from 1.9 percent, citing slow domestic demand due to high interest rates and sluggish global economy.

The private think tank’s growth forecast for Korea is 0.2 percentage point lower than the outlook of the International Monetary Fund (IMF) at 1.7 percent.

KERI, under the Federation of Korean Industries (FKI), analyzed that the Korean economy will fall into recession this year as there is no growth momentum that will help overcome the slowdown.

“The growth will decline further if the U.S. Fed continues to keep its rapid monetary tightening stance or excessive private debt triggers crisis in the financial market,” said Lee Seung-seok, a researcher at KERI. “The downgrade is inevitable as there is also lack of capacity for policy support.”

KERI projected private spending to gain 2.4 percent this year, which is 2.0 percentage points lower than last year’s growth of 4.4 percent. KERI blamed high prices that affect real purchasing power and falling income of self-employed individuals that are under growing pressure to repay loans.

Facility investment is expected to contract 2.5 percent this year, KERI projected, and construction investment 0.5 percent due to the surge in raw material prices that cause setbacks in construction projects.

KERI projected consumer prices to increase 3.4 percent this year, 1.7 percentage points lower than last year, as prices of raw materials stabilize and strong dollar eases.

Exports, the main driving engine for economic growth, are projected to grow only 1.2 percent this year due to sluggish chip demand, which is down 1.9 percentage point from 3.1 percent last year, KERI said.

Korea’s exports will further lose momentum if demand shrinks in China, the country’s largest export destination, and exports of key items other than chips come up short, Lee said.