SEOUL– The South Korean financial market is likely to remain in the doldrums for the time being, but it may rebound later in 2023, when the monetary tightening comes into effect, the head of the Korea Development Institute (KDI) said Monday.
“The economy started contracting in the second half of this year, and this trend will continue in 2023 as well,” Cho Dong-chul, president of the state-run think tank, told reporters.
“The situation will be very tough in 2023, but if there are no major unexpected issues, many people believe that the economy will gradually head toward normalization starting a year after,” Cho added.
Cho pointed out that the real economy may face challenges as it takes some time for monetary tightening actions to come into effect, but the financial market will gradually improve starting in the second half of 2023.
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.
“At least under the current cycle, South Korea is at its final stage of the monetary tightening move, which also applies to the U.S.,” he added.
Cho, meanwhile, cited the slowing exports as one of the threats for the South Korean economy in 2023.
Even if China eases its COVID-19 restrictions, South Korea is not likely to continue to enjoy robust shipments to its biggest trading partner as it did in the past, he said.
South Korea is widely expected to post an annual trade deficit this year for the first time since 2008.
This year’s exports had reached $644.3 billion as of Saturday, up 6.8 percent on-year, according to the data from the Korea Customs Service. Imports, meanwhile, increased at a wider margin of 20.1 percent to hit $691 billion on high energy costs, resulting in a deficit of $47.4 billion.
Source: Yonhap News Agency