{"id":2203398,"date":"2024-01-10T17:47:03","date_gmt":"2024-01-10T08:47:03","guid":{"rendered":"https:\/\/koreapro.org\/?p=2203398"},"modified":"2024-01-11T16:57:21","modified_gmt":"2024-01-11T07:57:21","slug":"forecasting-south-koreas-2024-economic-growth-and-challenges","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2024\/01\/forecasting-south-koreas-2024-economic-growth-and-challenges\/","title":{"rendered":"Forecasting South Korea\u2019s 2024 economic growth and challenges"},"content":{"rendered":"
South Korea\u2019s GDP growth was substantially under its expected potential last year, registering at an estimated 1.4%. Projections for the current year suggest an uptick in growth, primarily attributed to a strong resurge in exports, especially in the semiconductor industry.<\/span><\/p>\n Investments in industry facilities, closely correlated with exports and the semiconductor sector, are also predicted to further fuel this growth rebound.<\/span><\/p>\n However, projections remain cautiously optimistic, with an expected modest growth of 2.1% for 2024, which aligns with South Korea\u2019s estimated potential gross domestic product (GDP) growth rate.<\/span><\/p>\n However, concerns persist that the average growth across 2023 and 2024 could still fall short of the potential, largely due to weakened domestic consumption and the deterrent effect of high interest rates on construction investments.<\/span><\/p>\n These concerns gained prominence with the recent financial restructuring sought by Taeyoung Engineering & Construction Company, highlighting the broader potential impact on the country\u2019s credit market, the real estate sector and construction investments.<\/span><\/p>\n Despite the South Korean government allocating $64.4 billion (85 trillion won) to stabilize the real estate market, high interest rates could pose significant challenges to project financing.<\/span><\/p>\n TRADE, INFLATION, JOBS<\/b><\/p>\n The projection for South Korea\u2019s consumer price index (CPI) inflation in 2024 is set at 2.4%. An increase in CPI inflation was noted in the final quarter of 2023, which analysts attribute to rising oil and public utility prices alongside a strong labor market.<\/span><\/p>\n However, a decrease in CPI inflation is anticipated in 2024, resulting from base effects and weaker growth momentum. Recent inflation trends have been driven by supply-side factors such as increased oil and agricultural product prices and demand-side dynamics, including robus labor participation and low unemployment rates.<\/span><\/p>\n Despite the ongoing geopolitical tensions in the Middle East, supply-side inflation is expected to ease in 2024. Moreover, as the job market cools from the previous year, demand-pull inflation is projected to moderate as well.<\/span><\/p>\n The labor market has shown a swifter expansion rate than anticipated, partly due to greater participation from older and female workers. December saw an employment rate of 61.7%, a record high for the month. However, this trend may wane, with certain sectors like health care possibly having reached peak job growth.<\/span><\/p>\n Forecasts for the current account (C\/A) surplus have been revised upwards for both 2023 and 2024, with new figures at 1.5% and 2.9% of GDP, compared to earlier forecasts of 1.4% and 2.6%, respectively. This upward revision is primarily attributed to a shift from a trade deficit to a surplus, bolstered by increased semiconductor exports.<\/span><\/p>\n This adjustment comes despite a decrease in primary income, especially in comparison to 2023 when the government offered tax benefits for foreign dividends.<\/span><\/p>\n However, several risks loom over these forecasts, such as potential spikes in oil prices due to geopolitical tensions, China\u2019s economic slowdown and trade uncertainties during a U.S. election year.<\/span><\/p>\n Within South Korea, the upcoming parliamentary elections are expected to be a focal point. The country\u2019s shrinking and aging population poses a challenge to both domestic consumption and investment. Nonetheless, the expanded labor market participation by women and the elderly is likely to provide some buffer against these demographic pressures.<\/span><\/p>\n