Bank of Korea Expected to Slash Economic Growth Outlook to Below 1 Percent

Strategic Insights -

The Bank of Korea (BOK) is anticipated to decrease its 2023 economic growth projection to below 1 percent due to weak domestic demand, political uncertainty, and the impact of U.S. tariffs. Economists expect the rate-setting monetary policy board to lower the key interest rate to 2.5 percent during Thursday's meeting, driven by a bleak trade outlook and years of slowing investment and domestic spending. The Korean economy is forecast to grow 0.8 percent this year, down from a previous projection of 1.6 percent, with 0.5 percentage points attributed to external factors and 0.3 percentage points due to internal factors.

Key Takeaways:

  • The Bank of Korea (BOK) is expected to cut its 2023 economic growth projection to below 1 percent.
  • The rate-setting monetary policy board is anticipated to lower the key interest rate to 2.5 percent during Thursday's meeting.
  • The Korean economy is forecast to grow 0.8 percent this year, down from a previous projection of 1.6 percent.
  • 0.5 percentage points of the decline are attributed to external factors, including U.S. tariffs.
  • The remaining 0.3 percentage points can be chalked up to internal factors, such as weak domestic demand in the construction sector.
  • The construction sector has registered a drop of 3 percent last year and is expected to decline by 4.2 percent this year.
  • Corporate investment sentiment is struggling, with facility investment growth expected to be limited to 1.7 percent due to heightened global uncertainty.
  • The BOK is urged to cut key rates to tackle the extended economic downturn, but caution is advised when implementing extra budgets.
  • The OECD, ADB, and IMF forecast a growth rate of 1.5, 1.5, and 1 percent, respectively.

Statistics:

  • The BOK's forecasted 2023 economic growth rate is 0.8 percent.
  • The 0.8-percentage-point cut is made up of 0.5 percentage points from external factors (U.S. tariffs) and 0.3 percentage points from internal factors (weak domestic demand).
  • The construction sector declined by 3 percent last year and is expected to drop by 4.2 percent this year.
  • Facility investment growth is expected to be limited to 1.7 percent due to heightened global uncertainty.

Sources:

  • Jung Kyu-chul, a senior fellow at the Korea Development Institute (KDI)
  • The Organization of Economic Cooperation and Development (OECD)
  • The Asian Development Bank (ADB)
  • The International Monetary Fund (IMF)
  • The Bank of Korea (BOK)
  • Korea Development Institute (KDI)