Hyeon-gyeong Yeon "Next Year's Economic Growth Rate Expected to Recover to Potential Level... Weaker Than Expected"

"2.2% Growth Expected... Similar Trends in First and Second Half"
Growth Likely Minimal Even Reflecting Base Effects
Possibility of Entering Long-Term Low Growth

There is a forecast that next year's economic growth rate will remain at the potential growth rate level of 2.2%.

According to Hyundai Research Institute's '2024 Korea Economic Outlook' on the 29th, next year, Korea's economy is expected to transition to a recovery phase due to a slight improvement in the global economy and a base effect from this year's low growth.

However, risks such as the ongoing complex domestic and external recession, concerns over global economic slowdown due to the cumulative effects of monetary tightening in major countries, and the possibility of an economic downturn in China suggest that the growth rate will likely be around the potential growth rate or only slightly exceed it.

The institute explained, "Both domestic and external demand remain sluggish, prolonging the recession phase, which is likely to delay the formation of an economic trough for a considerable period. This is because retail sales and exports continue to decline, and the coincident index's cyclical component, which reflects the current economic situation, has sharply dropped since last May." It added, "Unlike past trends where there was a sharp rebound after a recession, next year's economic growth rate is not expected to significantly exceed the potential growth rate, even considering the base effect from this year's low growth in the 1% range."

Private consumption is expected to recover gradually as the burden of high interest rates eases, but accumulated household debt and interest repayment burdens will act as downside factors for recovery. Exports are projected to turn to an increasing trend as global import demand slightly rebounds and the semiconductor industry passes its bottom. However, if downside risks such as China's economic downturn and delays in semiconductor recovery due to US-China conflicts materialize, the recession may persist. Employment conditions are expected to see an increase in the number of workers in manufacturing and construction sectors, but the growth in service sector employment is likely to slow slightly, resulting in an overall slight weakening.

According to the institute, next year’s growth rate is expected to show a 'high in the first half and low in the second half' pattern, with the first half growth rate at 2.3% and the second half at 2.1%. However, this is mainly due to the base effect from the low growth rate of 0.9% in the first half of 2023, and in reality, the economic trend in the first and second halves is likely to be similar.

The institute suggested, "As the possibility of entering a long-term low growth phase increases, it is necessary to prepare policy alternatives that can block these concerns early." Specifically, it emphasized strengthening fundamentals, preventing the transmission of external risks domestically, promoting investment incentives, easing regulations in new technology and new industry sectors, and creating a stable supply environment for raw materials.