KDI lowers growth forecast, but expects rebound in 2024

Economy

Published: 11 May. 2023, 18:05

KDI lowers growth forecast, but expects rebound in 2024

Chon So-ra, left, a research fellow at the Korea Development Institute (KDI), and Jung Kyu-chul, director of macroeconomic analysis and forecasting at KDI, announce the think tank's economic forecast on Thursday at the government complex in Sejong. [YONHAP]

The Korea Development Institute (KDI) on Thursday lowered its growth forecast for Korea this year from the previous 1.8 percent to 1.5 percent.

The state-run economic think tank cited shrinking exports weighed down by sluggish chip demand for the dismal outlook in its Thursday report.

It would be the slowest growth since the 0.7 percent contraction in 2020 during the height of the pandemic.

The new projection is lower than the government's 1.6 percent target, the OECD and the Bank of Korea's 1.6 percent estimate, and is in line with the International Monetary Fund's forecast of 1.5 percent.

Korea's economy grew 2.6 percent last year.

The KDI's growth outlook for 2023, which stood at 2.3 percent in May last year, had been adjusted in November to 1.8 percent before being slashed again by 0.3 percentage points in the latest report.

Korea reported a trade deficit for 14 months in a row in April, with export volume shrinking for the seventh consecutive month.

Semiconductor exports plunged 41 percent on year to $6.4 billion in April due to weak global demand and falling memory prices.

The average selling prices of DRAMs plunged 20 percent in the first quarter and will likely go down by 10 to 15 percent in the second quarter, according to Taiwan's TrendForce.

The KDI's 1.5-percent growth forecast came despite a rebound in consumer spending.

According to the think tank, consumer spending has been on a steady rise despite high commodity prices and rate hikes thanks to a recovery in tourism demand and improving consumer sentiment.

High commodity prices remain a burden.

The KDI inched down its projection for inflation to 3.4 percent from the previous 3.5 percent.

But the forecast for the core price increase — which does not include food and energy prices — was adjusted to 3.5 percent from the previous 3.4 percent.

Meanwhile, employment remains resilient thanks to the service sector's strong performance despite weakening manufacturing.

The KDI adjusted its estimate for the number of newly employed this year to 270,000 from the previous 100,000.

Korea's economy is anticipated to rebound in 2024, with an estimated growth rate of 2.3 percent, as global chip demand is expected to recover gradually next year.

The KDI suggested the base rate be frozen to rein in inflation.

"Despite a sluggish economy, the job market remains favorable, but the core price increase is still steep," the KDI said in the latest economic outlook.

"For macroeconomic policies, the base interest rate should remain the current level for a while to stabilize the inflation rate."

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]