Industrial Research Institute Forecasts 1.4% Economic Growth Rate This Year... Down 0.5%p in 6 Months

A national research institute has projected that South Korea's economic growth rate will record 1.4% this year. The analysis suggests that export recovery is delayed due to global economic sluggishness and a slowdown in trade volume, and domestic demand may contract due to consumption and investment slowdown caused by the full-scale impact of interest rate hikes.

On the 30th, the Korea Institute for Industrial Economics and Trade (KIET) revised down its forecast for South Korea's economic growth rate from the initially expected 1.9% to 1.4% in its "2023 Second Half Economic and Industrial Outlook." This represents a 0.5 percentage point reduction in the forecast within half a year.

The reason KIET lowered the growth rate forecast is the judgment that export recovery is slower than expected. Exports are showing an increasing trend in electric vehicles and secondary batteries, but due to last year's base effect, global demand slowdown, semiconductor recession, and a decrease in exports to China, exports are expected to decline by 9.1% this year.

In particular, the deterioration of the semiconductor industry is seen as a direct blow to export sluggishness. Semiconductor exports, which accounted for about 19% of last year's exports, sharply decreased as prices fell due to a slowdown in demand for memory semiconductors. Semiconductor exports have been declining for nine consecutive months from August last year to last month.

The decline in semiconductor exports is analyzed to negatively affect not only the current gross domestic product but also total fixed capital formation such as semiconductor-related facility investment, thereby adversely impacting long-term gross domestic product. KIET stated that if South Korea's semiconductor exports decrease by 10%, the GDP for that quarter decreases by 0.16%.

China's slow economic recovery is also holding back growth. Hong Seong-wook, a research fellow at KIET's Trend and Statistical Analysis Division, said, “We considered in the growth rate forecast that the effect of China's reopening is more modest than expected, the impact of the semiconductor export decline on our economy is greater than anticipated, and the recovery of exports and manufacturing is delayed more than expected.”

KIET forecasted that due to delayed export recovery this year, the trade deficit will continue for the second consecutive year at $35.3 billion, following last year.

[Image source=Yonhap News]