[Second Half Economic Policy] Government Raises This Year's Growth Rate from 2.2% to 2.6%

Semiconductor Export Boom Boosts Economic Outlook

The government has raised its economic growth forecast for this year from the initial 2.2% to 2.6%. With the global expansion of artificial intelligence (AI) demand improving semiconductor exports, it expects the positive trend in the Korean economy to continue in the second half of the year.

On the 3rd, the Ministry of Economy and Finance presented a 2.6% economic growth forecast for this year in the '2024 Second Half Economic Policy Direction' announcement. Kim Byung-hwan, the First Vice Minister of the Ministry of Economy and Finance, said, “In the first half, our economy showed a 1.3% quarter-on-quarter growth rate in Q1, while inflation is also slowing down. Considering the recent export boom, we have revised the growth forecast upward from the initial 2.2% to 2.6%.”

The economic growth forecast released by the Ministry of Economy and Finance on the same day matches the upwardly revised forecasts by the Korea Development Institute (KDI, 2.2%→2.6%) and the Organisation for Economic Co-operation and Development (OECD, 2.2%→2.6%). It is higher than the revised forecast (2.4%) announced by the Bank of Korea last month. Major domestic and international economic institutions generally revised their forecasts reflecting the stronger-than-expected 1.3% economic growth rate in Q1. The government was also widely expected to raise its economic growth forecast accordingly.

The government expects the improvement trend to continue in the second half as the semiconductor market recovers. The current account surplus forecast was also significantly raised from the initial $50 billion to $60 billion surplus. Vice Minister Kim explained, “We significantly raised the forecast reflecting the rapid improvement, such as the trade balance recording the largest surplus since September 2020.”

However, it was assessed that the pace of domestic demand recovery would vary. Although household interest burdens remain high, inflation is expected to slow down toward the second half, and consumption constraints are expected to ease as corporate earnings improve. However, construction investment is expected to face difficult conditions due to a contraction in new projects and risks related to real estate project financing (PF).

The consumer price inflation rate was maintained at the initial 2.6%. According to the 'June Consumer Price Trends' announced by Statistics Korea on the 2nd, the consumer price index last month rose by only 2.4% compared to the same month last year, marking the lowest inflation rate in 11 months since July last year (2.4%). Vice Minister Kim stated, “There are still differences in the pace of recovery across sectors, so in the second half, we will focus on policy responses for sectors that urgently need support to ensure that economic indicators improve more broadly and are felt more widely.”