Korea's economy to grow at low 1 percent next year

Unloading work is underway at Busan Port\'s Freshwater Pier. Yonhap News Agency.

Korea's economy is expected to grow in the low 1 percent range next year for the second consecutive year, according to a private research institute.

In its "2024 Economic Outlook for Business Executives," released on December 25, LG Research Institute forecasted the country’s annual real gross domestic product growth of 1.8 percent (1.9 percent in the first half and 1.7 percent in the second half) next year. This is 0.5 percentage points higher than this year's annual growth estimate (1.3 percent), but 0.3 percentage points lower than the Bank of Korea's forecast for next year (2.1 percent).

"Since the war years of the 1950s, Korea has recorded growth rates lower than 2 percent only during crises such as the foreign exchange crisis and financial crisis," a researcher at the institute said. "However, the country is expected to grow by only 1.3 percent in 2023 amid sluggish exports and a weak consumption recovery, and by less than 2 percent in 2024 for the second consecutive year, raising concerns of low growth stagnation." The researcher expected growth in private consumption (1.5 percent), construction investment (-0.6 percent), exports (2.1 percent), and imports (0.5 percent) to all be below this year's growth rate, with the exception of capital expenditure (-0.3 percent), which is expected to decline less than this year (-0.6 percent). Annualized consumer price inflation next year is expected to slow to 2.8 percent, but still well above the BOK's management target (2 percent).

"The higher growth rate next year than this year is due to the base effect, and the overall economic recovery is expected to be weak," the report said. "Higher prices and interest rates are expected to depress household consumption, corporate capital investment is sluggish, and reverse growth is expected in construction investment due to deteriorating leading indicators of the construction industry and possible risks in real estate project financing."

The researcher also warned against "premature optimism" regarding expectations of interest rate cuts in major economies next year, which have recently been optimistic in financial markets.

"The U.S. policy rate (benchmark interest rate) cut will not start until the middle of next year and will be smaller than 1 percentage point," the researcher said, adding, "Korea's policy rate cut may come later and be smaller than the U.S.'' The BOK is likely to cut rates by half a percentage point twice in the second half of next year after the U.S. rate cut, the researcher said.

※This article has undergone review by a professional translator after being translated by an AI translation tool.