Korea likely to slash 2023 growth forecast amid plunging exports

The Korea Times

The Korea Times

Finance

Tue, September 26, 2023 | 09:11

Economy

Korea likely to slash 2023 growth forecast amid plunging exports

Posted : 2023-05-07 16:29

Updated : 2023-05-08 10:13

Containers are stacked up to be shipped overseas at a port in Busan, May 1. Yonhap

By Yi Whan-woo

Korea is leaning toward revising down its growth forecast for this year, in the face of a deepening export slump, a weaker-than-expected spillover effect of China's reopening and other worsening economic risks here and abroad.

Earlier this year, both the Ministry of Economy and Finance and the Bank of Korea (BOK) estimated the country's economy to expand by 1.6 percent in 2023.

But their respective chiefs then hinted at the possibility of lowering the growth outlook last week, in a corresponding move to decreased projections announced by international financial organizations in recent months.

The BOK is scheduled to announce its updated economic growth outlook during a monetary policy board meeting, May 25. The Ministry of Economy and Finance plans to do so by the end of the first half of the year.

"The government will think again over the growth outlook by comprehensively taking into account data from other financial institutions concerning our economy," Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said during a press conference on the sidelines of the Asian Development Bank's (ADB) annual meeting at Songdo Convensia in Incheon, Thursday.

He apparently backed away from his previous view in early April, when he said lowering the GDP forecast "is not in the government's scenario for the time being."

Also on the sidelines of the ADB meeting, BOK Governor Rhee Chang-yong said during an interview that the central bank may reduce its growth estimate for Korea due to a "slower-than-expected economic recovery in China."

The BOK chief was referring to China's reopening after years of pandemic lockdowns, which was highly anticipated to help revitalize Korea's export-reliant economy.

Sagging demand continued in China for Korea's key export products, while China's quarterly GDP beat market expectation and grew at 4.5 percent in the first three months of 2023.

For instance, Korea's semiconductor exports plummeted 41 percent year-on-year in April, continuing to decline for the ninth straight month, according to data compiled by the Ministry of Trade, Industry and Energy.

Outbound shipments of petroleum products to China also fell 27.3 percent year-on-year during the cited period.

With a weaker-than-expected spillover effect from China's reopening, Korea's exports worldwide slid 14.2 percent year-on-year to $49.6 billion in April, extending a losing streak for the seventh consecutive month.

The lackluster export performance adds further pressure on the Korean economy, already saddled with snowballing household debt, which amounted to nearly 3,000 trillion won in 2022, up 700 trillion won during the past five years.

Consequently, global credit rating agency S&P cut the 2023 economic growth estimate for Korea to 1.1 percent, Wednesday, down from 1.4 percent in its previous outlook released in December.

S&P's projection is the lowest among growth forecasts for Asia's fourth-largest economy announced by major institutions ― the International Monetary Fund (IMF) reduced its economic outlook for the fourth straight time to 1.5 percent in April, while the Organization for Economic Cooperation and Development (OECD) also lowered Korea's growth outlook by 0.2 percentage point to 1.6 percent in April.

Sung Tae-yoon, a Yonsei University economics professor, speculated the Korea's growth may fall to the low 1 percent range this year after growing 2.6 percent in 2022.

"The government thus should take all possible measures to tackle risks, both domestic and overseas," Sung said.

yistory@koreatimes.co.kr