"South Korea's Economic Growth Rate Next Year 1.6~1.9%... Impeachment Crisis and US Trump Protectionism Impact"

KIAF, 66th Industrial Development Forum... 'Diagnosis and Response Directions for Next Year's Industrial Economy' Presented
"Global Semiconductor Market Grows 12.1%... Facility Investment Increases 7.9%"
"Car Sales Up 1.3%... Production Down 1.4% and Exports Down 4.2%"

Next year, South Korea's economic growth rate is projected to be between 1.6% and 1.9%. Due to domestic political instability from the impeachment crisis and the Trump administration's strengthened protectionist trade policies in the U.S., uncertainty has increased, leading to an analysis that growth will remain in the 1% range. Before the 12·3 martial law, the growth rate was forecasted to be in the low 2% range, but it was lowered to the 1% range as uncertainty grew afterward.

Export containers are piled up at Busan Port. Photo by Jinhyung Kang

The Korea Industrial Alliance Forum (KIAF) announced on the 19th that it held the 66th Industrial Development Forum at the Automobile Hall in Seocho-gu, Seoul, under the theme "Diagnosis and Response Directions for Next Year's Industrial Economy." KIAF is an organization composed of 19 cooperative and affiliated groups, including semiconductor and automotive mobility sectors.

Forum Chairman Jeong Manki diagnosed, "The fate of South Korea's industrial economy will depend on how the four major uncertainties?domestic political instability due to the impeachment crisis, continued domestic corporate regulatory environment, the Trump administration's strengthened protectionist trade policies, and China's overproduction and market disruption?are overcome."

He added, "Since these are problems difficult for companies to tackle alone, the government, ruling party, and opposition parties such as the Democratic Party should support companies through regulatory reforms and timely budget support. In particular, the revision of the Commercial Act to impose directors' duty to maximize shareholder profits should be avoided."

In the keynote presentations and sector-specific outlooks, announcements were made to lower the economic growth forecast for next year.

Jang Sang-sik, Director of the Korea International Trade Association, said in his keynote presentation, "Next year, the global economy is expected to grow by 3.2%, similar to this year. Growth rates in the U.S. and China will slow, but the European Union (EU) and Japan will see higher growth rates due to base effects. Many institutions had forecasted South Korea's economic growth rate to be around 2% before the martial law, but after the martial law, due to capital outflows and investment decline risks caused by political instability, global investment banks (IBs) have revised the forecast downward to 1.6?1.9%."

Director Jang said the consumption sector is expected to recover slowly due to household debt burdens. In the investment sector, construction investment weakness is expected to continue, while facility investment is expected to gradually improve, thanks to interest rate cuts and recovery in the semiconductor industry. The won-dollar exchange rate is expected to decline moderately to around 1,350 won (won appreciation). The U.S. Federal Reserve's interest rate cut stance and foreign currency inflows from trade surpluses are expected to act as factors lowering the exchange rate.

Exports next year are expected to reach $697 billion, an increase of 1.8% from the previous year. Growth in the artificial intelligence (AI) industry is expected to continue expanding the global IT industry, including semiconductors. Imports are expected to increase by 2.5% to $654 billion. The trade balance is expected to record a surplus of $43 billion. Exports to the U.S. and China are expected to decline. Director Jang expressed concern, saying, "If the U.S. applies a 10% general tariff and a 60% high tariff on China as promised by President-elect Trump, South Korea's exports to the U.S. will decrease by 8.7%, and exports to China will decrease by 2.5%. The export prices of Chinese steel (-17.7%), fertilizers (-12.8%), and chemical products (-12.6%) will drop sharply, intensifying price competition with Korean products."

In sector-specific outlooks, growth is expected centered on semiconductors, but the scale is not expected to be large. Ko Jong-wan, Head of Strategic Planning at the Korea Semiconductor Industry Association, said, "Next year, the global semiconductor market is expected to grow by 12.1% from the previous year to $759.1 billion. Due to oversupply starting from the third quarter, memory fixed prices have shifted to a downward trend, which is expected to continue until the first half of next year before rebounding." He added, "Due to cutting-edge process investments to meet advanced semiconductor demand and gradual market improvement, the forecasted growth rate for facility investment next year is 7.9%, with an average annual growth of 2.5% until 2028."

Kwon Eun-kyung, Head of Research at the Korea Automotive Mobility Industry Association, said, "Domestic sales next year are expected to increase by 1.3% from the previous year to 1.66 million units, while production is expected to decrease by 1.4% to 4.07 million units. Exports are expected to slow due to strengthened protectionism in the U.S. and China and delays in electric vehicle launches. The export value of automotive parts is expected to decrease by 4.2% from the previous year to $68 billion."

Shin Kwan-seop, Head of Research and Analysis at the Korea Iron & Steel Association, said, "Domestic demand is expected to decrease by 1.5% due to the recession in demand industries, while exports are expected to increase by 1.6%. Production is expected to maintain the previous year's level due to efforts to expand exports, and imports are expected to decrease by 3.9% due to weak domestic demand, but the proportion of Chinese steel imports will remain large."

Shin Jeong-gyu, Head of Planning and Research at the Korea Shipbuilding & Offshore Plant Association, said, "The shipbuilding industry, which had seen a decline in new orders since 2006, showed signs of recovery last year with about 39.3 million CGT (compensated gross tonnage). Orders are expected to decrease from 2,203 ships this year to 1,948 ships next year, then gradually increase."

The IT and display industries are expected to show growth. Kim Jong-gi, Head of New Industry at the Korea Institute for Industrial Economics & Trade, said, "Next year, exports of the information and communication equipment industry are expected to grow by 8.4% due to the spread of AI and increased demand for solid-state drives (SSD). Production is also expected to increase by 5% due to export growth and domestic demand recovery." He added, "Home appliance exports are expected to increase by 1.0% due to AI appliances and smart home demand, with domestic demand increasing by 2.1% and production by 1.0%."

Jo Eun-sook, Head of Industrial Policy at the Korea Display Industry Association, said, "Next year, the global display market is expected to increase by 6.6% from the previous year to $142.4 billion. The organic light-emitting diode (OLED) sector is expected to see remarkable growth in the IT (18.2%) and automotive (24.5%) sectors."