Economic Growth Outlook for 2019 and 2020 Another downward adjustment was made to Korea’s economic growth forecast for 2019 to 2.2 percent according to the Bank of Korea (BOK) in July 2019.
The BOK also slashed its growth outlook for 2020 to 2.5 percent. Adverse external conditions were mostly to blame for the downward revision. Korea’s exports have fallen for the past seven months mostly due to a slump in the semiconductor sector and slowing global economic growth. With economic slowdown and cooling demand in China, Korea’s exports to the country have sharply dropped. In addition to a prolonged U.S.-China trade conflict, Japan’s export restrictions have added to uncertainty over the
Korean economy, which is largely dependent on external trade for its growth.
Private consumption is expected to grow by 2.3 percent in 2019, which is down from the earlier forecast of 2.5 percent made in April 2019. The softening of nominal wage growth and a reduction in employment in the manufacturing sector will likely pressure household income growth, dampening consumer spending. Although the pace of its growth will be lower than last year’s, consumer spending will continue to grow moderately. Positive factors that can boost consumption include an increase in fiscal spending aimed to strengthen the social safety net. Consumer spending is projected to
expand by 2.4 percent in 2020.
The outlook for equipment investment growth in 2019 has sharply deteriorated amid the sluggishness of the global IT market and growing uncertainty over the U.S.-China trade row. Next year, however, is likely to see a recovery in equipment investment as the semiconductor industry is expected to start rebounding. In the non-IT sectors, businesses are making investment spending mostly on maintenance due to weak global demand and a high level of uncertainty surrounding the global economy. Equipment investment is forecast to decline by 5.5 percent in 2019 and then grow by 3.4 percent in 2020.
Construction investment is expected to contract by 3.3 percent in 2019 and 1.6 percent in 2020 following a decline of 4.3 percent in 2018. The continued slump in the construction sector has been driven by housing oversupply and the resulting fall in housing starts. Residential building construction is likely to continue its steep decline until next year considering what leading indicators suggest. Investment in civil works is projected to recover gradually on the back of government support of private civil engineering projects and a rise in government spending on safety enhancement measures for worn-out infrastructure.
Merchandise export growth is anticipated to slow to 0.6 percent in 2019 and then improve to 2.4 percent in 2020 depending on an easing of trade tensions. Export growth is losing steam as slowing global growth and a downturn in the semiconductor
industry continue to be a drag on the nation’s export performance. Japan’s export controls also pose a significant risk to Korean export growth. World trade also faces strong headwinds due to growing trade tensions and heightened economic uncertainty.
Global merchandise trade volume is forecast to grow by 2.6 percent in 2019, down from 3 percent in 2018, according to the World Trade Organization.
The forecast of consumer price inflation was lowered to 0.7 percent in 2019 and 1.3 percent in 2020. There are a set of supply-side factors that put downward pressure on prices, such as low international oil prices and agricultural product prices. Demandside
inflationary pressure is also weakening. The core inflation rate, which excludes food and energy prices, is projected to be 0.8 percent in 2019 and 1.2 percent in 2020.