Korean economy to rebound in 2024

While the world’s major economies are forecast to see a decline in their economic growth in 2024 compared to 2023, the South Korean economy will grow at a higher pace as prices stabilize. But the improvement will be primarily accreditable to macroeconomic indicators, including exports from large companies, and concerns are growing that the perceived economic conditions of small and medium-sized enterprises (SMEs) and the self-employed, which are reliant on domestic demand, will worsen in 2024.

The data was from an in-depth survey on domestic and foreign economies in 2024 conducted by Maeil Business Newspaper on Sunday, with participation from leaders of the nation’s top five economic and business research institutions, Korea Institute for International Economic Policy (KIEP), Korea Institute for Industrial Economics and Trade (KIET), LG Business Research, Hyundai Research Institute (HRI), and The Federation of Korean Industries (FKI). Korea was expected to grow at 1.4 percent in 2023 and grow even faster at around 2 percent the following year, with the five research institutes projecting Korea’s economic growth at 1.8 to 2.2 percent in 2024.

While major economies including the United States, China, and Japan are forecast to grow at a slower pace than in 2023, the Korean economy will improve thanks to its reviving semiconductor industry.

High inflation will also ease significantly in 2024, with the survey saying that Korea’s inflation, which fell to the level of 3 percent in 2023 from its 5 percent range the year before, will fall to the mid-2 percent level in 2024.

The key to 2024’s growth is semiconductors, with exports turning to positive territory in November 2023 for the first time in 16 months. “The economy will grow by 2 percent in 2024 as exports led by chips recover while growth of domestic demand, including consumption, slows,” according to KIET President Ju Hyeon. But the economic research institutes called for preemptive measures, saying that Korea’s private debt, which has not shrunk despite high interest rates, and a slowdown in China are the biggest threats to the economy in the upcoming year.

The Korean economy will continue to recover throughout the first half of 2024 but will weaken towards the second half of the year as major economies such as the United States are likely to see a recession. More debt-prone borrowers, such as SMEs and micro-entrepreneurs, could go bankrupt due to high interest rates, leading to a slowdown in domestic demand. This is why the Bank of Korea is expected to lower its key interest rate in the second half of 2024 at the latest as inflationary pressures lessen and to prevent an economic downward spiral. The United States is likely to cut rates first in the first half of 2024, with Korea following suit.