S. Korea sets 2023 growth outlook at 1.6 pct

SEOUL– South Korea’s finance ministry on Wednesday lowered the country’s 2023 economic growth to 1.6 percent as the country braces for the impact of global monetary tightening moves and weaker exports.

The government’s projection marked a sharp decrease from the 2.5 percent growth outlook projected by the ministry in June following the launch of the new administration.

It also falls below the 1.7 percent growth outlook suggested by the Bank of Korea (BOK). The International Monetary Fund expects the South Korean economy to grow 2 percent next year.

For 2022, the finance ministry said Asia’s No. 4 economy is estimated to have grown 2.5 percent on-year.

South Korea suffered a “triple whammy” of inflation, high interest rates and the strong U.S. dollar throughout this year, which weighed down the country’s post-pandemic recovery.

Next year, the finance ministry said the uncertainties surrounding the Chinese economy and the Russia-Ukraine war are expected to continue to put downward pressure on South Korea and the global economy.
“South Korea is still facing challenging external conditions, with the hurdles expected to rise further in the first half of next year,” First Vice Finance Minister Bang Ki-seon told reporters earlier this week.

“The slowdown in the real economy is being realized led by (weaker) exports amid the slow growth of the global economy and the sluggish chip market,” Bang added.

With exports and investment expected to remain in the doldrums following the contraction of the global economy, the finance ministry said in its report that high borrowing costs will weigh down consumption in 2023.

South Korea estimated private consumption to grow 2.5 percent on-year in 2023, compared with the 4.6 percent growth this year, as people gradually feel the pinch of rate hikes.

In sync with the global central banks’ move to raise borrowing costs, the Bank of Korea has hiked the rate by a combined 2.75 percentage points since August last year, eventually reaching 3.25 percent at the final rate-setting meeting of this year in November.

The ministry, however, said the recovery could also be limited due to the higher debt burden of households, along with the slowing job market and the falling property costs.

Meanwhile, South Korea’s on-year inflation is anticipated to reach 3.5 percent on-year in 2023, down from the 5.1 percent growth estimated for this year.

“The global prices of raw materials, including oil and grains, will be lower next year compared to 2022,” the ministry said.

“But there may be inflationary pressure in utility services due to an adjustment of electricity and gas prices. In addition, there are uncertainties surrounding raw material prices,” it added.

The South Korean job market, which has stayed strong throughout 2022 despite the central bank’s aggressive rate hikes on the post-pandemic recovery, is set to lose steam next year, the finance ministry added, citing a base effect.

The country is expected to add a net 100,000 additional jobs in 2023, sharply down from the growth of 810,000 projected for this year.

The employment rate of those aged from 15 to 64, meanwhile, is expected to stand at 68.7 percent in 2023, slightly up from 68.5 percent tallied in 2022.

The ministry added that South Korea’s facility investment is expected to fall by a wider margin of 2.8 percent on-year in 2023, compared with the 1.8 percent drop this year, due to growing external uncertainties, especially in the chip market.

The investment in the emerging industries, including eco-friendly cars and batteries, however, may enjoy more investment throughout 2023, it added.

South Korea’s exports are expected to decrease 4.5 percent on-year in 2023, compared with a growth of 6.6 percent projected for this year.

“Exports of ships, eco-friendly cars and rechargeable batteries are expected to remain strong, but other key export goods, such as chips and petrochemical products, are expected to remain weak,” the ministry said.

“However, our exports may gradually rebound after the second half when the global economy and the chip industry recover,” it added.

Outbound shipments fell 14 percent on-year to $51.91 billion in November, following a 5.7 percent on-year fall the previous month, separate data from the trade ministry showed earlier, amid the weak chip market and China’s COVID-19 restrictions. China is the top trading partner of South Korea.

It was the first time since early 2020 that exports fell for two months in a row. South Korea last reported declining exports for more than two months from March through August 2020 amid the COVID-19 pandemic.

“With rate hikes in major countries giving a full-blown challenge to the real economy, South Korea, which depends heavily on overseas markets, is also quickly losing ground, led by (falling) exports,” Finance Minister Choo Kyung-ho said during a press conference.

Choo said South Korea is especially expected to face hurdles over the first half of 2023, although its economy may gradually recover later in the year in sync with the global economy.

“Next year, a mix of crises from overseas is expected to have a full-fledged impact on different areas of the economy, with difficulties anticipated to linger for a significant time,” the minister added.

“The government will tighten its belt firmly and play a leading role in overcoming the crisis.”

Source: Yonhap News Agency

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