Hankyung Research Institute "This Year's Growth Rate 2.0%... Pre-COVID Level"

Addressing the Risk of Private Sector Debt Is Crucial

This year, the economic growth rate is expected to reach 2.0%, the level before the outbreak of COVID-19. This is due to increased export performance driven by improvements in the global economy. However, domestic demand recovery is expected to become visible after the second half of the year, when the base interest rate cuts are fully implemented.

Citizens are looking at the cityscape of densely packed buildings such as corporations and banks from Namsan in Seoul.

On the 15th, the Korea Economic Research Institute (KERI), under the Korea Economic Association, announced this in its report titled 'KERI Economic Trends and Outlook: Q1 2024.'

KERI stated, "Whether there will be smooth handling of private debt risks due to the accumulated burden of principal and interest repayments will be a key variable for next year's growth trend," adding, "Rapid economic recovery is difficult due to the prolonged high interest rates and high inflation, which have worsened economic conditions, and the weakening of policy support."

It further analyzed, "If the economic downturn in China, the largest export market, prolongs and domestic companies' exports only experience a temporary recovery, it cannot be ruled out that even the low growth rate of 2.0% may not be achieved."

In the domestic sector, private consumption, which accounts for the largest share, is expected to grow by 1.6% this year. Although consumption conditions may improve, KERI's analysis suggests that the recovery will fall short of expectations due to income deterioration and the burden of household debt principal and interest repayments, which have more than doubled.

Facility investment is expected to show a recovery trend after the second half of the year, when the global IT economy revives and the interest rate peak-out becomes a reality. In this case, a growth rate of 3.0% can be anticipated.

Economic Outlook for This Year Announced by Korea Economic Research Institute / [Image Credit: Korea Economic Research Institute]

As for sluggish construction investment, despite an increase in civil engineering investment due to the government's expansion of the social overhead capital (SOC) budget, the trend is expected to remain weak. This year, a growth rate of 0.5% is forecasted due to last year's sharp decline in construction orders and permits, combined with negative factors such as the deterioration of real estate project financing (PF).

The consumer price inflation rate is expected to stabilize at 2.5%. The rise in the US dollar is expected to slow down, and prices of raw materials such as international oil are expected to gradually stabilize.