The Korea Economic Research Institute (KERI) has released its “Economic Trends and Outlook” report for the second quarter of 2024, revealing an optimistic forecast for the South Korean economy. The report anticipates an economic growth rate of 2.4% for 2024, a notable improvement from previous projections. This upward revision is primarily attributed to the robust growth in exports, particularly in the semiconductor sector, as the global economy shows signs of recovery.
Despite growing uncertainties both domestically and internationally, and diminished expectations of a U.S. base rate cut, South Korea’s export sector continues to perform well. The stronger-than-expected first-quarter results have been a key factor in the positive adjustment of the country’s economic outlook.
However, the report also highlights challenges on the domestic front. Private consumption, which constitutes the largest portion of domestic demand, is expected to grow by only 1.9%, reflecting weak performance. The prolonged erosion of income, the heavy burden of household debt repayment, and low consumer confidence are significant factors impeding a stronger recovery in consumption. Nonetheless, KERI predicts that consumer spending may see some improvement in the latter half of the year, supported by the stabilization of prices and the positive impact of improved export performance on real incomes.
Investment trends present a mixed picture. Facility investment is currently sluggish due to uncertainties in the global economic recovery and the challenges of capital procurement in a high-interest-rate environment. However, KERI expects a gradual recovery in the second half of the year, projecting a 3.1% growth rate driven by a global boom in the IT sector, particularly in artificial intelligence (AI).
In contrast, construction investment remains in a downturn, affected by a sharp decline in construction orders and permits from the previous year, and compounded by negative factors such as the deterioration of real estate project financing (PF). Despite an increase in civil engineering investments spurred by government initiatives, the overall construction sector is expected to remain weak.
On the inflation front, the consumer price index (CPI) is forecasted to follow a downward trend, settling around 2.7% for the year. This is despite ongoing volatility in raw material prices, including international oil prices, and rising costs of agricultural, livestock, and marine products due to climate change.
The export sector, which had been hampered by a global recession in the IT industry, the lack of impact from China’s reopening, and geopolitical risks affecting raw material supply, is now expected to rebound. As major economies recover and the IT market strengthens, KERI projects a 5.0% growth in exports, driven by heightened demand for semiconductors, especially in AI-related fields.
Lastly, the report anticipates a recovery in the current account balance, with a projected surplus of $59 billion, bolstered by a stronger trade balance.
KERI’s latest outlook underscores the resilience of South Korea’s export sector in the face of global challenges, while also pointing to areas of concern in domestic consumption and investment that will require careful monitoring as the year progresses.