Summary
In light of changes in internal and external conditions, Korea’s real GDP is projected to grow by 2.6 percent in 2022 and 2.1 percent in 2023.
The number of persons employed is expected to increase by 740,000 this year and by 140,000 in 2023.
CPI inflation is forecast to record 5.2 percent and 3.7 percent in 2022 and 2023, respectively.
The current account is forecast to record a surplus of USD 37 billion in 2022 and USD 34 billion in 2023.
Macroeconomic Outlook
1. Economic Growth
Private consumption
Private consumption is expected to grow by 4.0 percent and 2.6 percent in 2022 and 2023, respectively. With the support of improved income conditions and continued lifting of social distancing from COVID-19, private consumption is projected to recover gradually. However, high inflation, the rise in interest rates, and growing economic uncertainties may be potential factors limiting the recovery of consumption.
Facilities investment
Facilities investment is projected to decrease by 3.8 percent in 2022 but will increase by 0.9 percent in 2023. In the second quarter, facilities investment decreased due to disruptions in the global supply chain and growing economic uncertainties. The recovery is expected to be delayed, caused by a global economic slowdown and increased cost of capital. IT manufacturing sector investment will decrease after a temporary improvement in the second half of 2022, and the non-IT sector will continue its modest trend of decrease.
Intellectual property products investment
Intellectual property products investment is expected to grow by 4.0 percent and 3.5 percent in 2022 and 2023, respectively. R&D investment is projected to increase thanks to the expanded R&D in new growth industries and the government support. Other intellectual property products investment will also increase, led by expanded software-related investment as digital transformation accelerates.
Construction investment
Construction investment will decrease by 1.5 percent in 2022, followed by an increase of 2.2 percent in 2023. In the second quarter, construction investment is expected to recover slightly from its downward trend with the support of additional construction projects and continue growing moderately as the increase in prices for raw materials slows down and sales of new building lots increase.
Exports of goods*
* Actual goods exported in GDP
Export of goods are expected to grow by 3.2 percent in 2022 and by 1.6 percent in 2023. The export of goods is projected to slow further as global demands weaken especially in China, and the spreading impacts of slowdowns in major economies may further limit the growth.
Economic growth
The Korean economy is expected to grow by 2.6 percent and 2.1 percent in 2022 and 2023, respectively. The Korean economy continued to recover as consumption improves rapidly, but uncertainties in the growth trend are growing due to downside risks including the prolonged Ukraine crisis and the interest rate hikes of major economies.
2. Employment
Since the second quarter, the number of employed persons (compared to the same period of the previous year) has continued to grow sharply, mostly driven by increases in the service sector, and is expected to sustain the upward trend. In the manufacturing sector, the increase in employment is expected to be reduced due to sluggish export growth. The increase in construction projects and other factors are projected to stall employment growth in the construction sector.
3. Prices
The CPI inflation forecast for 2022 has been revised upward compared to the May projection, reflecting increased demand-side inflationary pressure following the lifting of social distancing measures and rising prices of agricultural products. However, short-term trends will heavily be influenced by recent fluctuations in global oil prices and the prices of agricultural prices. Core inflation for items other than food and energy is forecast to stand at 3.6 percent this year and 3.1 percent next year, respectively.
4. Current Account Balance
The current account surplus is projected to shrink for this year as the goods account and the service account surpluses significantly contract. The current account surplus is projected to diminish this year as foreign investment income suffers from both worsening global economic prospects and the decrease in foreign investment outflows. Despite the revitalized transport service sector, the easing of overseas travel restrictions and the subsequent surge in foreign travel demand will widen the service account deficit.
※ Source: Bank of Korea (bok.or.kr)(bok.or.kr)
*This article is extracted from Invest KOREA information center, 2022.
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