Why it matters: South Korea's economy, hit by a contraction in its IT sector and the aftershocks of China's reopening, is expected to recover gradually in the second half of 2023, albeit slower than earlier forecasts. These forecasts provide essential insights into the challenges facing Asia's fourth-largest economy.
- South Korea's economic growth is projected to be 1.4% in 2023, a deceleration from 2.6% in 2022 and slightly lower than the February estimate of 1.6%.
- Core CPI inflation is projected to rise more than previously forecast, reflecting growing demand for services, a tight labor market, and the lagged impact of accumulated cost pressures.
- The South Korean economy is expected to see a moderate recovery in consumption and a gradual improvement in exports, supported by the Chinese economy's reopening and the IT slump's easing.
- Employment is projected to increase by 250,000 in 2023, well above the previous estimate, resulting in an expected unemployment rate of 3.0%.
The Big Picture: The global economic environment, characterized by uncertainty about China's recovery, the state of the IT industry, and developments in the U.S.-China conflict, contributes to Korea's economic outlook.
Other economies, such as the U.S., face challenges, with lowered expectations for interest rate hikes and concerns about recent bank failures.
Global economic growth is forecast to increase slightly to 2.5% in 2023 but is expected to slow in the second half of the year due to credit tightening and the impact of interest rate hikes.
South Korea's economic outlook highlights high uncertainties, particularly related to the pace of recovery in the Chinese economy and potential financial instability in advanced economies. These uncertainties could lead to different scenarios for South Korea's economic future.