SEOUL– South Korea’s gross domestic product (GDP) growth may fall below 2 percent next year due to the impact of high interest rates, high inflation and a weak won on its economy, experts said Sunday.
Private-sector economists said they find few upside factors that will keep the country’s economic growth at the rate of 2 percent in 2023.
“Exports are slowing amid a global slowdown and domestic consumption is expected to remain sluggish due to high consumer prices and rising interest rates. There will be limited corporate investments due to high borrowing costs,” LG Economic Research Institute economist Cho Young-moo said.
Kim Jung-sik, an economics professor at Yonsei University, projected that the real estate market could collapse due to higher lending rates and high inflation.
Hana Bank’s financial institute and the Korea Economic Research Institute forecast the country’s GDP to grow 1.8 percent and 1.9 percent, respectively, in 2023.
But state-run agencies and overseas financial institutions have yet to lower their growth outlook for South Korea.
The Bank of Korea (BOK) and the state-run Korea Development Institute projected Korea’s economy to grow 2.1 percent and 2.3 percent, respectively, next year. But the KDI is expected to lower its growth outlook sooner or later.
The International Monetary Fund (IMF), the Organization for Economic Cooperation and Development, and the Asian Development Bank forecast growth of 2 percent, 2.2 percent and 2.3 percent for Korea next year.
In its upcoming economic outlook next month, the government is widely expected to lower its growth outlook of 2.6 percent for South Korea in 2023.
Consumer prices, a key gauge of inflation, increased at the fastest pace in almost 24 years at 6.3 percent in July and rose 5.7 percent in October from a year earlier.
The country’s key interest rate stands at 3 percent, lower than the U.S. benchmark rate at a range of 3.75 percent to 4 percent.
In a recent interview with Yonhap News Agency in Seoul, former World Bank economist Anne O. Krueger said, “I would guess in the South Korean case for (a 0.5 percentage-point rate hike) with a 5 percent inflation rate, there’s no question, in my view, it was too low.”
She suggested that without a rate hike in Korea, the rate differential could have widened further, which would prompt capital outflows from local financial markets in pursuit of higher returns.
As for this year, the BOK revised down its growth outlook for the country to 2.6 percent from 2.7 percent. But the IMF revised up its growth outlook for South Korea to 2.6 percent from 2.3 percent.
Source: Yonhap News Agency