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KERI Bulletin

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KERI Bulletin

KERI Economic Bulletin (Mar. 2024 No.88)

24. 3. 25.



 The Korean economy shows a gradual improvement recently as exports begin to show signs of strength, despite continued weakness in domestic demand. The persistent trend of high inflation and high interest rates, coupled with excessive private debt burden, has led to significant contraction in private consumption and investment. In particular, the real estate project financing (PF) issue has amplified risks across the construction sector, leading to negative growth rates in construction investment. However, the fast recovery of semiconductor exports and other major export items, due to the improvement in the global economy, is seen as one of the few positive aspects for the current Korean economy.

 The Korean economy is forecast to achieve a growth rate of 2.0% in 2024, driven by the base effect of low growth from last year and the improved export performance of major export items such as semiconductors. This signifies a modest growth rate, yet it indicates a recovery to pre-pandemic growth levels. Private consumption, the largest component of the domestic sector, is anticipated to grow by 1.6%, suggesting subdued performance. Even though the gradual stabilization of prices has led to improved consumer conditions, the lingering effects of income erosion during the pandemic, coupled with the surge in household debt repayment burdens, and the resulting weakening of consumer sentiment, are expected to prevent a full recovery to anticipated growth levels. Equipment investment is predicted to expand by 3.0% as the global IT sector rebounds, and it is expected to further gain momentum from the second half of the year when interest rates are expected to begin falling and inventory burdens ease. Meanwhile, construction investment, which has been persistently weak, is expected to continue its sluggish trend despite an increase in civil engineering investment  due to the government's expansion of SOC (Social Overhead Capital) budgets. This is owing to a combination of factors including sharp declines in construction orders and permits last year, as well as challenges stemming from real estate project financing (PF) loan defaults. The consumer price index is forecast to reach around 2.5%, as commodity prices, including international oil prices, gradually stabilize, and the strong dollar also eases. On the other hand, exports, which had experienced a sluggish trend because of the global IT downturn, the absence of China's reopening effect, and concerns over raw material supply uncertainty amid geopolitical risks, are expected to drive economic recovery this year as major economies recover and the IT market expands. The current account balance is projected to recover to around US$51 billion, as a result of an expansion in the surplus of the goods account.

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