Bank of Korea Projects 2.1% Growth This Year, Strong Exports but Weak Domestic Demand (Comprehensive)

Growth Rate Forecast Maintained at 2.1%

Bank of Korea Governor Lee Chang-yong is presiding over the Monetary Policy Direction Decision Meeting of the Monetary Policy Committee held at the Bank of Korea in Jung-gu, Seoul on the morning of the 22nd. Photo by Joint Press Corps

The Bank of Korea maintained its forecast for this year's real Gross Domestic Product (GDP) growth rate at 2.1%. Exports, centered on semiconductors, are expected to perform better than anticipated, but domestic demand is projected to remain sluggish.

In the revised economic outlook announced on the 22nd, the Bank of Korea predicted that the South Korean economy will grow by 2.1% this year. The Bank had forecasted a 2.1% growth in November last year and has maintained this projection.

However, the Bank of Korea judged that the divergence between exports and domestic demand will be greater than initially expected.

During the fourth quarter of last year, domestic demand had a negative contribution to growth, while exports exceeded expectations, resulting in an overall growth trend consistent with the initial forecast path.

Looking ahead, although domestic demand recovery will be slow, the overall economy is expected to continue a moderate improvement trend, supported by favorable increases in exports and facility investment.

Nevertheless, the Bank added that there remains high uncertainty regarding major factors such as growth and inflation trends in key countries, the timing of monetary tightening easing, and the ripple effects of domestic real estate project financing (PF) restructuring.

The Bank of Korea's growth forecast for this year is slightly lower than those of the government and major domestic and international research institutions. The government expects the economy to grow by 2.2% this year. The Korea Development Institute (KDI) and the Organisation for Economic Co-operation and Development (OECD) also forecast 2.2%, while the International Monetary Fund (IMF) projects a slightly higher 2.3%.

On the same day, the Bank maintained its consumer price inflation forecast for this year at 2.6%. Last year, South Korea's consumer price inflation rate was 3.6%. It predicted a slowdown in inflation due to weak domestic demand in investment and consumption.

The Bank expects the core inflation rate this year to be 2.2%, slightly below the previous forecast by 0.1 percentage points, due to weak domestic demand pressures. However, consumer price inflation is expected to remain at 2.6%, in line with the previous forecast, due to increased uncertainty in oil prices and exchange rate rises.

The current account surplus is expected to reach $52 billion this year, exceeding the initial forecast of $49 billion. The goods balance surplus is projected to widen more than expected due to continued recovery in the semiconductor market, strong growth in the United States, and a slowdown in domestic demand. The services balance deficit is expected to widen due to lower-than-expected foreign tourist arrivals.

The increase in the number of employed persons this year is expected to be around 250,000, generally in line with the initial forecast of 240,000. The unemployment rate is projected to rise slightly to 2.9% from 2.7% last year.