KDI projects Korean economy to grow 2.2% in 2024

[Photo by Yonhap]

The South Korean economy is projected to grow 2.2 percent and prices 2.6 percent in 2024, according to the nation’s leading think tank Korea Development Institute (KDI).

“In 2024, our economy is expected to grow by 2.2 percent with a moderate recovery led by exports despite the slowing growth in domestic demand,” the KDI said in its economic forecast for the second half of 2023 released on Thursday.

The think tank’s latest projection for next year’s economic growth is 0.1 percentage point lower than its August forecast of 2.3 percent. This year’s growth estimate is 1.4 percent, or 0.1 percentage point lower than the previous forecast of 1.5 percent.

KDI’s growth forecast for the upcoming year is the same as that of the Bank of Korea, the International Monetary Fund, the Hyundai Research Institute, and the Asian Development Bank. It is lower than the 2.6 percent forecast by Goldman Sachs Group Inc. and Moody‘s Investors Service Inc.’s 2.4 percent, but higher than Fitch Ratings Inc.’s 2.1 percent.

A growth rate of over 2 percent is projected for next year as export recovery is likely to pick up speed. KDI said that “while goods exports are showing a moderate recovery led by semiconductors, service exports are also expected to continue to grow at a high rate due to a gradual recovery in travel demand.”

It also believes that this year’s goods exports will decline 7.2 percent to $640.6 billion from $690.5 billion a year ago, but the think tank forecast that the figures will grow 6.7 percent to $683.6 billion next year from this year.

This means the growth of goods exports next year will be nearly 14 percentage points higher than this year. The increase in the value of merchandise exports will be driven by stronger exports of Korea’s flagship export areas, namely semiconductors and automobiles, according to KDI.

The improvement in exports is also expected to boost the current account surplus, with KDI forecasting a current account surplus of $31.9 billion for this year and $42.6 billion for next year.

Next year’s consumer price inflation is projected at 2.6 percent, slightly up from the August forecast of 2.5 percent. The higher projection comes as the report’s forecast for next year’s international oil price was raised to about $85 per barrel from $75 per barrel.

The inflation forecast for next year has been lowered by one percentage point from the 3.6 percent for this year as domestic demand will grow slower. The contracting demand is also expected to affect core inflation, which will slow to 2.4 percent next year from 3.5 percent this year.

KDI said the slowdown in domestic demand will likely stunt the growth in the number of employed people, saying that “the number of employed people will increase by 210,000 next year, down from 320,000 this year, and the unemployment rate will rise to 3 percent from 2.7 percent.”

But the report also noted that the number of employed people will continue to grow at a higher rate than the population decline next year as the labor supply expands, especially among women in their 30s.

It also advised that monetary tightening should remain for the time being to bring down inflation, hinting at the need to reach the 2 percent inflation target to achieve price stability.

But the institute warned against r the benchmark rate too quickly as each country’s inflation and economic conditions vary, citing that Korea’s inflation remains lower than that of major economies and that prices could stabilize earlier than expected.