According to the Korea Development Institute(KDI), the economic growth rate forecast for this year has been lowered by 0.1% points to 2.5% after three months. This adjustment is mainly due to the prolonged high-interest-rate situation, which is expected to delay the recovery of private consumption and investment in facilities. KDI also revised the forecast for private consumption growth to 1.5% from the previous 1.8% and for facility investment growth to 0.4% from the previous 2.2%. However, construction investment is projected to have a smaller decline than initially expected due to the limited impact of real estate project financing defaults. The employment increase has been adjusted from 240,000 to 200,000 due to weak domestic demand, while the unemployment rate is maintained at 2.8%.
On a positive note, the export growth momentum is expected to expand, especially in the semiconductor industry, leading to an upward revision of the total export growth rate to 7.0% from the previous 5.6%. The current account surplus is predicted to reach $77 billion, an increase from the earlier forecast of $70.3 billion. Additionally, the consumer price inflation rate has been revised to 2.4%, reflecting the sluggish domestic demand and downward adjustment of international oil prices. The underlying inflation rate, excluding food and energy, has also been adjusted to 2.2% from the previous 2.3%.
KDI raised concerns about the potential impact of recent volatility in the domestic stock market on the real economy, emphasizing the need for cautious observation. They also warned that an escalation of geopolitical risks in the Middle East or a sharp decline in the economies of the United States and China could further delay Korea’s economic recovery. As a domestic risk factor, KDI pointed out the prolonged high-interest-rate environment, which could constrain household consumption capacity and corporate investment capability, leading to a delay in domestic recovery. Director Jung suggested the need for a gradual adjustment of the base interest rate from May and the introduction of macroprudential policies such as the Debt Service Ratio(DSR) stress test to pursue financial stability and potentially lower interest rates further.