South Korea’s economic growth is expected to hover below 2 percent in 2023, a state-run think tank said, due to the country’s weakening exports amid worries over a global recession.
Source: Yonhap News Agency
The export-reliant economy is estimated to grow 1.8 percent on-year in 2023, according to the Korea Development Institute (KDI), hovering below the 2.7-percent growth outlook suggested for this year.
“The global economic slowdown, sparked by major countries’ move to raise interest rates to cope with high inflation, is expected to exacerbate the sluggish exports,” the KDI said in its report. “If the U.S. continues to speed up its rate hikes, or if the global economy contracts further, the South Korean economy will lose steam on weak exports and the manufacturing industry,” the researcher added.
Earlier this month, the U.S. Federal Reserve raised its benchmark rate by another 75 basis points to a target range of 3.75 to 4 percent.
Other external risks include China’s zero-COVID-19 policy, which may cause more disruptions in the global supply chain, the KDI said. China is South Korea’s top trading partner.
Exports stood at US$52.48 billion in October, down 5.7 percent from $55.7 billion a year earlier, separate data from the trade ministry showed this month. It was the first on-year decline since the 3.6 percent drop posted in October 2020.
The KDI added South Korea’s private consumption is expected to grow 3.1 percent on-year in 2023, down from this year’s estimate of 4.7 percent, as inflation is set to weigh down on people’s purchasing power.
The think-tank said the growth in consumer prices, a key gauge of inflation, may fall to 3.2 percent in 2023 due to stabilizing global crude costs, although it still hovers over the central bank’s target of 2 percent.
Consumer prices rose 5.7 percent in October from a year earlier. The rising global uncertainties are expected to hurt South Korea’s facility investment as well, with the on-year growth staying at 0.7 percent in 2023, primarily due to the sluggish performance of chips, the mainstay export products, it added.
The KDI, meanwhile, advised South Korea needs to maintain its monetary tightening policy for the time being to cope with inflation but also needs to consider a possible economic slowdown when setting the key rate.
The central bank raised the benchmark seven-day repo rate from 2.5 percent to 3 percent last month, the first time in around a decade that the rate has risen to the 3 percent range.
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