The Organization for Economic Cooperation and Development (OECD) on Wednesday lowered its 2023 growth outlook for South Korea to 1.5 percent, citing weak exports and sluggish private investment.
The latest estimate by the Paris-based organization marks a 0.1 percentage point drop from a 1.6 percent growth projection in March. The growth projection for 2024 was also lowered to 2.1 percent, down 0.2 percentage point from the previous estimate.
Last month, the Bank of Korea (BOK) lowered its growth outlook for South Korea to 1.4 percent from a 1.6 percent expansion predicted three months earlier. The state-run Korea Development Institute (KDI) also slashed its growth outlook by 0.3 percentage point to 1.5 percent.
“Private consumption and investment will remain weak in the near term in response to higher interest rates and a sluggish housing market, but will pick up gradually in 2024,” the OECD said in its report.
In May, the BOK held the benchmark interest rate steady for the third straight time at 3.5 percent on easing inflationary pressure amid rising concerns over an economic slowdown.
“A slowdown in global demand, notably for semiconductors, has dampened exports considerably, along with sluggish demand from China in late 2022,” the OECD added.
South Korea’s exports fell for an eighth consecutive month in May, plunging 15.2 percent on-year to US$52.24 billion.
The decline came as exports of semiconductors, the country’s key export item, sank 36.2 percent on falling demand and a drop in chip prices.
Concerning the inflation, the OECD estimated consumer prices in Asia’s fourth-largest economy to rise 3.4 percent on-year in 2023, slowing from the previous estimate of 3.6 percent.
“Korea’s direct trade with Russia and Ukraine is limited, but rising energy and food prices pushed up inflation,” the OECD said. “Inflation will gradually moderate but remain above target, as planned increases in service and utility prices have been postponed until the second half of 2023.”
South Korea’s inflation has been on a downward trend with some ups and downs after reaching a peak of 6.3 percent in July last year.
But inflation nevertheless stayed above 2 percent — the central bank’s inflation target over the medium term — for the 26th straight month in May, rising 3.3 percent on-year.
“Further global financial turmoil could increase the household debt servicing burden and trigger volatility in financial markets,” it added.
The OECD, meanwhile, noted fiscal consolidation should proceed to cope with the impact of the country’s rapidly aging population.
To this end, the organization suggested that the South Korean government’s proposed fiscal rule, which centers on capping the deficit to 3 percent of the country’s gross domestic product, would “help to limit the build-up of fiscal pressure.”
The Korean government would also “target vulnerable groups more directly” by “addressing gaps and weaknesses in the social safety net, and enhancing incentives for energy savings.”
Source: Yonhap News Agency