[2023 Economic Policy] Government Also Acknowledges 1% Growth Next Year... More Pessimistic Than Bank of Korea and KDI

Government Lowers Next Year's Growth Rate Forecast... 2.5% → 1.6%
Lower Than Bank of Korea's Projection (1.7%)... KDI at 1.8%
Inflation Rate at 3.5%... Current Account Surplus of 21 Billion USD

[Asia Economy Sejong=Reporter Lee Jun-hyung] The government has downgraded its economic growth forecast for next year due to the impact of the global economic downturn. Inflation is expected to stabilize compared to this year.

The Ministry of Economy and Finance projected economic growth rates of 2.5% for this year and 1.6% for next year in the '2023 Economic Policy Direction' announced on the 21st. Earlier, in the 'New Government Economic Policy Direction' released shortly after the inauguration of the Yoon Seok-yeol administration in June, the ministry had forecast a 2.5% growth rate for next year. This means the government's economic growth forecast has dropped from the 2% range to the 1% range over the past six months. The growth forecast for this year was slightly adjusted down by 0.1 percentage points from 2.6% to 2.5%.

The ministry expects the inflation rate to slow from 5.1% this year to 3.5% next year. However, this remains above the Bank of Korea's inflation stabilization target of 2%.

Downward Economic Trend... Reflecting Deputy Prime Minister Choo Kyung-ho's Views

The government's forecast for next year's economic growth rate is 0.1 percentage points lower than the Bank of Korea's estimate of 1.7%. Compared to the 1.8% forecast by the Korea Development Institute (KDI), a government-funded research institute, it is 0.2 percentage points lower. The Organisation for Economic Co-operation and Development (OECD) also projects Korea's economic growth at 1.8% next year.

The government’s lower growth forecast compared to major domestic and international institutions reflects its assessment that the domestic economy is entering a downward trend. The government expects next year's growth rate to be the lowest since the global financial crisis in 2008 and the COVID-19 outbreak in 2020. A ministry official explained, “The steep interest rate hikes by major countries and energy supply instability in Europe are expected to significantly weaken global economic growth. Uncertainties related to the Chinese economy, the Russia-Ukraine war, and emerging market debt risks may act as downside risks.”

This forecast also reflects the views of Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho. Typically, the government tends to set economic growth forecasts relatively high, aiming to achieve growth rates about 0.3 to 0.4 percentage points above the forecast through policy efforts. There was an expectation within the government that next year's growth rate might be projected at 1.9 to 2.0%. However, Deputy Prime Minister Choo has consistently emphasized accurate diagnosis of reality and information sharing. It is reported that he instructed that the current data and external conditions be directly reflected in the growth forecast for next year.

Inflation at 3.5%... Current Account Surplus of $21 Billion

The government raised its inflation forecast. Next year's consumer price inflation rate was revised upward by 0.5 percentage points from the previous forecast of 3.0% to 3.5%. This year's consumer price inflation was also raised by 0.4 percentage points from 4.7% to 5.1%. Although inflation is expected to slow next year compared to this year, it still exceeds the Bank of Korea's inflation management target of 2.0%. The government noted that upward pressure on public utility rates such as electricity and gas, as well as uncertainties in major raw material prices and supply conditions, could cause fluctuations in the inflation forecast.

The current account surplus is expected to be $21 billion next year, down from $22 billion this year. While imports are expected to decrease by 6.4%, increasing the goods trade surplus, the service trade deficit is projected to widen due to the resumption of overseas travel and lower freight rates. Exports and imports are forecast to decline by 4.5% and 6.4%, respectively, compared to this year.

The increase in the number of employed persons is expected to be only 100,000 next year, a sharp drop to one-eighth of this year's increase of 810,000. This is due to a base effect from this year's unusually strong employment growth and the economic slowdown. The reduction in COVID-19 related quarantine and healthcare jobs also contributed to downward pressure on employment. Consequently, the unemployment rate is expected to rise by 0.2 percentage points from 3.0% this year to 3.2%. However, the employment rate for those aged 15 to 64 is projected to slightly increase from 68.5% this year to 68.7% next year due to population decline.

(Busan=Yonhap News) Reporter Kang Deok-cheol = On the morning of the 23rd of last month, a day before the general strike of the Cargo Solidarity Union, dark clouds gathered over Busan Port. The Cargo Solidarity Headquarters of the Korean Public Service and Transport Workers' Union (KPTU) will begin a general strike from the 24th, urging the extension of the safe freight rate system. 2022.11.23
kangdcc@yna.co.kr
(End)


＜Copyright(c) Yonhap News Agency, unauthorized reproduction and redistribution prohibited＞