International investment banks forecast 1.1% growth for Korea

Investment banks remain pessimistic about the Korea’s 2023 economic outlook given weak exports.

Exports to southeast Asian countries, the second largest trade partner for Korea, fell for a fourth straight month in January, striking a blow to the economic growth for the export-dependent nation.

Nine international investment banks, including Barclays, BoA-Merrill Lynch and Citigroup, on average forecast Korea to grow 1.1 percent this year, unchanged from a month earlier, according to a report by the Korea Center for International Finance (KCIF).

Domestic forecasts are higher, as are those from international organizations. The Korean government is looking for 1.6 percent growth, and the Bank of Korea and the International Monetary Fund (IMF) are estimating 1.7 percent.

The pessimistic outlook is related to sluggish exports, especially of semiconductors, high energy prices, high inflation, the housing market downturn and sluggish consumption. A low birthrate and an aging population only add to the worries.

International investment banks upgraded their outlooks for most Asian countries from a month earlier, including that for Hong Kong (2.8 to 3.0 percent), Thailand (3.7 to 3.8 percent), China (4.8 percent to 5.2 percent), Philippines (5.1 to 5.3 percent) and Vietnam (6 to 6.1 percent).

"The growth outlook for Asia’s emerging economies have overall been upgraded due to factors such as China’s reopening," explained a senior researcher at the KCIF. “Concerns over tightening monetary policy have partly eased from the stabilization of raw material prices."

To make matters worse, decreases are being reported in exports to Asean countries, considered an alternative market to reduce dependence on China.

Exports to Asean reached $124.92 billion last year, a new record after 2021’s $108.83 billion. The annual trade surplus with Asean stood at $42.38 billion, more than the $28.04 billion with the United States.

Exports to Asean started to lose steam from the end of 2022. The exports declined year-on-year from October (minus 5.7 percent) and then minus 19.8 percent in January this year. It is the first time in more than two years that exports decreased for four consecutive months.

The trade balance is deteriorating along with the decreasing exports. The trade surplus with Asean which remained in the $4 billion range until July last year, and fell to $2.57 billion in December and to $1.13 billion last month.

Vietnam, which takes nearly half of the Asean exports, has played a major role in Korea’s recent export slump due to its own startling exports, hitting domestic companies hard as they rely on intermediate goods exports to Vietnam.

Amid the decline in exports to Asean, Korea's overall export figures also fell.

Korea’s exports have declined for four months straight, and posted the largest decline, at minus 16.6 percent, in January 2023. The negative balance of trade stretched into the 11th month. The country also suffered the largest ever monthly trade deficit, of $12.69 billion, in January.

“Asean is the last bastion of trade for Korea,” said Kwak Sung-il, researcher at Korea Institute for International Economic Policy.

“The most concerning part is that exports of intermediate goods to Asean are being stagnant while countries including Vietnam are increasing imports from China,” Kwak said. “The government should work on establishing a supply chain and an investment environment that binds all Asean countries.”

The average growth forecast for 2024 by the nine international investment banks stood at 2 percent, the second worst after Japan (0.9 percent). It was behind Hong Kong (3.3 percent), Taiwan (2.6 percent), and Singapore (2.3 percent).

BY JEONG JONG-HOON, CHO HYUN-SOOK, SEO JI-EUN [seo.jieun1@joongang.co.kr]