5% Increase in Exports... Driving Growth
Domestic Demand Expected to Recover Slowly
The Korea Economic Research Institute under the Korea Economic Association announced on the 14th that it has revised its forecast for South Korea's economic growth rate this year upward by 0.4 percentage points, from the previous 2.0% to 2.4%. This is an increase from the 2.0% growth forecast made in March, just three months ago.
The institute explained that the economic growth rate was raised due to improved export performance as the global economy recovers. It analyzed that the increase in semiconductor exports driven by the expanding demand for artificial intelligence (AI) will be a major factor in the overall improvement of export performance. The export growth rate forecast presented by the institute for this year is 5.0%, with 6.8% in the first half and 3.1% in the second half.
Domestic demand is expected to experience delayed recovery until the high exchange rate and high inflation trends ease and the timing of the base interest rate cut becomes clearer. It explained that rapid domestic demand recovery will be difficult due to deteriorating economic conditions and weakened policy support capacity. Private debt risks, such as real estate project financing (PF), where delinquency rates are rapidly rising due to the accumulated burden of principal and interest repayments, are expected to act as major variables.
Prolonged economic sluggishness in China, the largest export market, and the possibility of expanded risks in the Middle East were analyzed as major downside risk factors.
Private consumption, which accounts for a large portion of the domestic demand sector, is expected to grow by 1.9% this year. Consumption showed a temporary increase in the first quarter due to increased leisure spending, but recovery is expected to fall short of expectations due to stagnant income conditions and increased burden of principal and interest repayments on household debt.
Facility investment is expected to grow by 3.1%. This forecast considers the reduced expectations for an interest rate decline and the expansion of localized risks. It is analyzed that the recovery will expand more in the second half of the year than in the first half due to the ripple effects of export growth.
Construction investment is expected to continue its sluggish trend due to the sharp decline in construction orders and permits last year, combined with the deterioration of real estate PF.
The consumer price inflation rate is forecasted to stabilize at a limited level of 2.7%, due to the prolonged strength of the US dollar and the increased volatility of raw material prices such as international oil prices.
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