Korea's GDP growth expected to fall short of 2% in 2024

Economy

Published: 08 Sep. 2023, 17:06 Updated: 08 Sep. 2023, 17:32

Korea's GDP growth expected to fall short of 2% in 2024

Pedestrians walk along the streets of Yeouido in western Seoul in June. [YONHAP]

The growth of Korea’s gross domestic product (GDP) is likely to linger at 1 percent in 2023 and 2024 according to foreign investment banks JP Morgan, HSBC, Citi, Nomura and UBS, bucking the government’s prediction for an economic rebound in the second half of this year.

The banks expect Korea’s economic growth to fall short of 2 percent in 2024, according to their August forecast data compiled by the Korea Center for International Finance (KCIF) on Tuesday.

If these predictions come true, Korea will face a back-to-back 1 percent GDP growth for the first time since data compilation began in 1954.

“Weak growth” has become trivial for talks on the Korean economy, but Korea's annual economic growth was under 2 percent on only five occasions.

It grew by 0.6 percent in 1956 due to poor harvest; minus 1.6 percent in 1980 due to a global oil crisis; minus 5.1 percent in 1998 during the Asian financial crisis; 0.8 percent during the Great Recession; and minus 0.7 percent in 2020 following the outbreak of the Covid-19 pandemic.

In September, a 1 percent economic growth in 2023 is a consensus among most economic entities.

The Ministry of Economy and Finance, Bank of Korea (BOK) and the International Monetary Fund (IMF) forecast a 1.4 percent growth. The Korea Development Institute, OECD and Barclays expect a 1.5 percent growth, while HSBC and Citi predict Korea’s economy to expand by just 1 percent.

Gross domestic product growth outlooks for Korea in 2023 and 2024 [EACH COMPANY]

“Overseas investment banks put more emphasis on global risks such as the Chinese economy and global oil prices in their outlook, but the [Korean] government observes the trend in recent outlooks more closely than the number itself,” said a Finance Ministry spokesperson.

The ministry expects Korea’s economy to pick up pace and grow by 2.4 percent next year. The BOK, OECD and World Bank, estimate 2.2 percent, 2.1 percent and 2.4 percent growth, respectively.

Despite the government’s faith in recovery, recent forecasts suggest Korea may have to brace for another year of 1 percent growth.

The IMF sees “a moderate increase in downside risk for Korea’s growth, especially in 2024, with China’s renewed slowdown,” Harald Finger, Korea Mission Chief of the IMF, said in a statement on Wednesday after concluding a two-week long visit to Korea.

Finger suggested that Korea adopt a “prudent fiscal policy” to keep the country’s economic fundamentals strong in the medium term.

Finance Minister Choo Kyung-ho talks to officials of the International Monetary Fund in a video teleconference on Tuesday. [MINISTRY OF ECONOMY AND FINANCE]

In its August data, Citi lowered the growth prediction in July by 0.1 percentage point to 1.7 percent and Barclays slashed 0.3 percentage points to 2 percent.

Korea’s central bank on Aug. 24 also cut its prediction by 0.1 percentage point to 2.2 percent.

Next year’s growth may halt at 1.9 percent if the growth trend weakens due to a continued slowdown in the Chinese property market, the BOK said in an alternate scenario analysis.

Rising global oil prices and central banks, including the U.S. Federal Reserve delaying their pivot from monetary tightening policies, are other risks weighing down the Korean economy.

“The possibility of a market recovery that was initially anticipated is falling, said Joo Won, deputy director of economic research at Hyundai Research Institute.

If inflation and high interest rates continue to drag down domestic and export markets, the scenario of an extended economic slump will unfold, he added.

Korea "needs to fuel the private sector by restructuring the industry around future growth engines," said Seok Byoung-hoon, an economics professor at Ewha Womans University.

BY KIM KI-HWAN, SOHN DONG-JOO [sohn.dongjoo@joongang.co.kr]