Korea's GDP to grow 2.1% next year amid Trump jitters: KIET

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Korea's GDP to grow 2.1% next year amid Trump jitters: KIET

Published: 25 Nov. 2024, 17:08

SHIN HA-NEE
[email protected]

Audio report: written by reporters, read by AI

Korea's national flag, Taegeukgi, flutters in Songpa District in southern Seoul on March 1. [NEWS1]

Korea's economic growth is expected to moderately decelerate next year to 2.1 percent, the Korea Institute of Industrial Economics and Trade (KIET) said Monday.

The projection from the state-funded research institute largely aligns with estimates by global market forecasters that have trended downward as concerns persist over burgeoning downside pressures related to U.S. President-elect Donald Trump's bold policy proposals.

The KIET projected the local economy to log a growth rate of 1.6 percent in the latter half of this year, bringing this year’s final growth to 2.2 percent, in its biannual economic outlook issued on Monday.

The annual projection is down from its previous forecast of 2.5 percent for this year that was published in May.

“The domestic real economy has seen a weak recovery despite robust export growth led by the semiconductor sector and a rebound in facility investments, as it was offset by sluggish consumption and construction investments,” said the KIET, attributing the weak private consumption to high consumer prices and interest rates.

For next year, the institute projected growth to slow to 2.1 percent, with 1.9 percent expansion expected in the first half and 2.2 percent in the second half.

“While construction investments are expected to remain slow next year, the economy is projected to grow 2.1 percent on a continued upward trend in exports and a gradual recovery in consumption and facility investments,” the KIET suggested.

The KIET estimated the country’s exports to hit a record of $685.5 billion this year, up 8.4 percent on year, and grow 2.2 percent next year to $700.2 billion, driven by growth in demand in the tech sector amid ongoing global interest rate cuts.

Containers are stacked at a port in Busan on Sept. 11. [NEWS1]

However, the institute noted that external uncertainties involving U.S. economic policy shifts, geopolitical risks and the pace of recovery in the global tech sector “may pose significant downside pressure” on the domestic economy.

On the export side, in particular, the KIET warned that “a universal tariff policy by the incoming Trump administration may lead to a decrease in Korea’s exports to the United States, especially weighing down the automotive sector, resulting in heavy downside pressure on overall exports.”

A blanket tariff of 10 to 20 percent with an additional tariff of 60 percent on Chinese imports may reduce Korea's exports to the United States by 8.4 to 14 percent, the institute projected.

The KIET’s 2.1 percent growth projection for next year is slightly higher than the 2 percent growth expected by the International Monetary Fund (IMF).

The IMF recently adjusted down its growth projection for the Korean economy for this year by 0.3 percentage points to 2.2 percent, and by 0.2 percentage points to 2 percent for next year.

This aligns with a wider trend by global investment banks, which have been downgrading Korea’s growth projection for both this year and next year.

Eight major investment banks including J.P. Morgan, Barclays and Goldman Sachs expected an average growth rate of 2.3 percent for the Korean economy as of the end of October, down 0.2 percentage points from a month prior, according to data compiled by the Korea Center for International Finance.

For next year, the projection was revised to 2 percent, down from the previous month’s average of 2.1 percent.

BY SHIN HA-NEE [[email protected]]