SEOUL - The Korea Development Institute (KDI), a leading state-run think tank, has affirmed its economic growth forecast for South Korea in 2024 at 2.2 percent, underpinned by an anticipated increase in exports despite persistent domestic demand challenges.
According to Yonhap News Agency, this growth estimate aligns with previous projections made by the South Korean government and the Organization for Economic Cooperation and Development (OECD). It also closely follows forecasts from the Bank of Korea (BOK) and the International Monetary Fund (IMF), which predict growth rates of 2.1 percent and 2.3 percent, respectively, for the same period. The KDI highlighted that the expected economic uplift would primarily stem from robust export demand, especially in the semiconductor sector, which is anticipated to drive the gradual recovery.
The think tank noted that high interest rates have particularly impacted construction investment and are likely to dampen private consumption. However, it projected an improvement in export conditions, buoyed by a more favorable global economic outlook. Adjustments in the KDI's forecasts include a slight decrease in the growth expectation for private consumption, from 1.8 percent to 1.7 percent, and an upward revision of export growth predictions, from 3.8 percent to 4.7 percent.
Furthermore, the KDI adjusted its inflation forecast for 2024 to 2.5 percent, a reduction of 0.1 percentage points from its earlier prediction, citing subdued domestic demand as a factor likely to alleviate inflationary pressures more swiftly than anticipated. This situation might lead the central bank to consider reducing interest rates in the latter half of the year, following a period of maintaining the key rate at 3.5 percent after a series of hikes.
Despite a decline in consumption, the institute forecasts the addition of 220,000 new jobs in 2024, slightly above its previous estimate of 210,000. This optimism is partly due to expected employment growth among women in their 30s and older citizens.
The report also outlined potential challenges, including geopolitical tensions in the Middle East that could elevate global oil prices and disrupt logistics, alongside concerns over a significant slowdown in China's economy, particularly in the real estate sector. Domestically, while the ongoing restructuring within the construction sector is not expected to escalate into broader financial system risks, the possibility of it causing a credit squeeze in related industries and adversely affecting the real economy cannot be entirely dismissed.
In 2023, South Korea's economy witnessed a 1.4 percent growth, with exports and private spending increasing by 2.8 percent and 1.8 percent, respectively. Facility investment saw a modest rise of 0.5 percent. In response to these economic conditions, Finance Minister Choi Sang-mok has committed to leveraging all available policy measures to enhance the welfare of the populace.