The Korea Institute of Finance (KIF) revised its forecast for South Korea’s annual economic growth rate to 2.5% from a previous projection of 2.1% made last November.
The adjustment, announced on May 12, reflects a more optimistic outlook for South Korea’s economy amid a significant improvement in exports, particularly in the semiconductor sector.
“Despite the dampening effects of high interest rates and inflation on private consumption, and the expected sluggishness in construction investment, we foresee a recovery trend in real GDP, bolstered by strong semiconductor exports and related equipment investments,” a KIF spokesperson said.
The KIF now expects total exports to grow by 5.3%, more than double the rate expected in their November forecast of 2.6%. KIF highlighted that global trade is gradually recovering, and as semiconductor demand increases, exports will be improved accordingly.
Additionally, KIF has raised its forecast for total import growth to 3.7% from 2.4%, citing increased demand for goods related to exports and a rise in service imports, particularly in travel services.
However, the forecast for private consumption growth has been lowered to 1.7% from the previous 2%. Although private consumption grew by 0.8% in the first quarter, the long-term effects of high prices and interest rates are likely to constrain spending power. Uncertainty in economic conditions is also expected to delay recovery in consumer sentiment.
Investment in equipment is forecast to increase by 3.7%, while construction investment is projected to decline by 2.4%. While investment in semiconductor-related equipment is expected to rebound, construction investment faces challenges due to rapid interest rate increases and real estate project financing issues.
The consumer price index is predicted to moderate, rising by 2.9% in the year’s first half and 2.4% in the latter half. “Consumer prices, which declined in the latter half of last year, have risen to around 3% this year, influenced by geopolitical risks in the Middle East and volatile raw material and fresh food prices.
The forecast for the average yield on three-year government bonds is 3.4%. The domestic interest rates are expected to stabilize at lower levels, following expected cuts in the Federal Reserve’s policy rates in the latter half of the year.
South Korea’s current account surplus is projected to reach $57.6 billion, with the average annual exchange rate for the Korean won against the U.S. dollar expected to be 1,355 won.
