Korean economic outlook has key risks to overcome in 2024

Bank of Korea Governor Rhee Chang-yong, left, and Korea Development Institute (KDI) President Cho Dong-chul

South Korean economic leaders said trade competition with China, geopolitical risks, and rising household debts are key factors threatening the South Korean economy.

During his keynote speech on the nation’s economic outlook in 2024 at a forum organized by the Korea Enterprises Federation on Thursday, Bank of Korea Governor Rhee Chang-yong forecasted that the sluggish commodity trade will gradually recover while global economic growth would be slowed by high interest rates, and improved exports would expand the nation’s growth despite slow consumer recovery.

But he added that the prolonged Russia-Ukraine and Israel-Hamas wars have increased international oil prices and economic volatility, posing challenges. “Considering the high uncertainty in inflation from geopolitical risks, a hasty rate cut could stimulate expectations of rising real estate prices,” Rhee said, highlighting the need for maintaining a tightening stance for an extended period while closely monitoring monetary policy, inflation, and financial stability data in major economies.

Major economic variables cited by Rhee included the November U.S. presidential election, trade risks with China, and weakening industrial competitiveness derived from population decline. Commenting on the shift in trade relations with China from complementary to competitive, Rhee stressed the necessity of industrial diversification “to reduce high reliance on China and manufacturing.”

Korea Development Institute (KDI) President Cho Dong-chul pointed out the nation’s chronic debt issues in his keynote speech set to be delivered on Friday during an economics conference organized by the Korean Economic Association.

Cho suggested that public support loans may have worsened household debt, quoting data showing such loans guaranteed by public organizations tripled to 327 trillion won in seven years from 113 trillion won in 2015, while growth of loans other than those public support loans was under 5 percent annually, staying in line with nominal gross domestic product growth.

He also assumed that aggressive support for low credit borrowers likely destabilized the home lease market and burdened the financial system with trillions of won in bad debts. According to KDI’s internal estimates, the national debt-to-GDP ratio will exceed 100 percent after 2050 and continue to grow rapidly. The debt ratio to GDP stood at 50.4 percent as of 2023, and if pension reform fails and the government starts filling the gap, it is estimated that the ratio will surge to over 250 percent by 2070.

Cho explained that each year of delay in pension reform would result in additional burdens of tens of trillion won, emphasizing the importance of addressing debt issues amid the nation’s low birth rates and aging population.