| The Korean economy is forecast to expand by 2.5% in 2024, a downward revision from the previous projection (2.6%), as export growth accelerates while recovery in private consumption and equipment investment lags. |
| I. Current Economic Conditions |
| The Korean economy exhibits a deceleration in growth momentum, primarily centred on domestic demand, which had demonstrated exceptional robustness in the first quarter. |
| The second quarter GDP growth decelerated sharply (3.3% → 2.3%), registering a quarter-on-quarter contraction of 0.2%. |
| Amid persistently elevated interest rates, private consumption demonstrated only modest expansion, primarily in goods consumption, while domestic demand remains anaemic, as evidenced by decelerating investment. |
| As tepid domestic demand permeates the economy, inflation has moderated, and workforce growth has decelerated, particularly in the service sector. |
| Conversely, exports maintained robust growth, propelled by the semiconductor sector. The combination of export improvement and subdued domestic demand has continued to sustain a substantial surplus trend in the current account. |
| Externally, the global economy is projected to exhibit modest growth in 2024, while optimism regarding the semiconductor market has significantly strengthened. |
| The forecasts for semiconductor transaction values have been substantially revised upward recently, particularly in the memory chip sector. |
| Concurrently, concerns over economic downturns in China and the U.S. have led to significant volatility in major stock markets and a decline in global oil prices. |
| Given these domestic and international circumstances, the Korean economy is projected to experience a slight delay in recovery compared to previous projections, as domestic demand is likely to remain subdued while export growth is expected to surpass earlier forecasts. |
| II. Domestic Economic Outlook for |
| 1. Major Assumptions on External Conditions |
| The global economy is presumed to sustain its moderate growth trajectory in 2024-2025, continuing the trend observed in 2023. |
| The IMF maintained its global economic growth projection for 2024 at 3.2%, consistent with its previous forecast. |
| Global memory semiconductor transaction values are assumed to increase by 76.8% in 2024, significantly exceeding the previous assumption (44.8%). |
| Reflecting the recent concerns over economic deceleration in China and the U.S., the crude oil import price 2024 has been adjusted downward. |
| The import price of crude oil (Dubai) is assumed to decline to $82 per barrel for 2024, a slight revision from the previous $85 per barrel forecast, while the 2025 price assumption ($82 per barrel) remains unchanged |
| The Korean won, in terms of the real effective exchange rate, is assumed to remain largely unchanged from recent levels. |
| 2. Domestic Economic Outlook for 2024~2025 |
| The Korean economy is expected to register a 2.5% growth rate in 2024, lower than the previous forecast of 2.6%, reflecting accelerated export growth and delayed recovery in private consumption and equipment investment. |
| Private consumption is forecast to expand by 1.5%, lower than the previous projection (1.8%), factoring in the protracted high interest rate environment. |
| Equipment investment is expected to grow by a mere 0.4%, significantly below the previous forecast (2.2%), as the semiconductor sector struggles to convert its robust performance into tangible investment. Conversely, construction investment is projected to contract less severely at -0.4% compared to the earlier forecast (-1.4%), with the fallout from real estate project finance distress remaining contained. |
| Total exports are projected to surge by 7.0%, exceeding the previous forecast (5.6%), as the semiconductor market experiences more favorable performance than earlier expectations. |
| With export projections revised upward and domestic demand components such as total consumption and total investment adjusted downward, the current account surplus is expected to expand to $77 billion, surpassing the previous forecast ($70.3 billion). |
| Meanwhile, the economic growth rate for 2025 is anticipated to be comparable to the previous projection of 2.1%. |
| Headline inflation is forecast at 2.4%, lower than the previous projection (2.6%), reflecting subdued domestic demand and downward revisions in international oil price assumptions. |
| The unemployment rate is maintained at 2.8%, consistent with the previous forecast. |
| Reflecting sluggish domestic demand, the number of employed persons is expected to increase by 200,000 in 2024, revised downward from the previous projection of 240,000. |
| The unemployment rate is maintained at 2.8%, consistent with the previous forecast. |
| 3. Risks to the Outlook |
| The recovery of the Korean economy could be further protracted if geopolitical risks in the Middle East escalate or if the economies of China or the U.S. experience a sharp downturn. |
| Should geopolitical tensions in the Middle East intensify, leading to a surge in global oil prices, it could exert upward pressure on inflation and downward pressure on economic activity. |
| While there is a high likelihood of gradual economic adjustments in China and the U.S., the possibility of an economic recession cannot be entirely discounted. |
| Additionally, if protectionism strengthens following the U.S. presidential election at the end of 2024, it could potentially hinder Korea's export performance. |
| Internally, if high interest rates persist despite moderating inflation, there is a risk of delayed recovery in domestic demand. |
| Given the substantial private sector debt accumulation, a persistent high interest rate environment could curtail household spending capacity and corporate investment appetite, potentially suppressing domestic demand. |
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South Korea: Economy forecast to expand by 2.5% in 2024 |
