The Korea Development Institute (KDI) projected South Korea's economic growth rate at 0.8% for this year. This is the same as the growth rate forecast announced in May. KDI diagnosed that while consumption shows slight recovery due to the effect of supplementary budget preparation and exports are performing well, the sluggish construction market is holding back growth.
In the 'revised economic outlook' released on the 12th, KDI presented the economic growth rate forecast for South Korea at 0.8% for this year. Despite poor export performance, it predicted that domestic demand would gradually recover to 1.6% growth next year.
In this revised economic outlook, KDI adjusted the private consumption growth rate upward by 0.2 percentage points compared to three months ago, and the total export growth rate was raised by 0.6 percentage points. However, due to the sluggish construction market, it forecasted that construction investment growth would plummet to -8.1%. This is a downward revision of 3.9 percentage points from the construction investment growth rate forecast announced three months ago (-4.2%). The combined growth rate of total fixed investment, including construction and facility investment, was adjusted downward by 1.8 percentage points to -2.7% from the previous forecast.
KDI noted, "The poor construction orders reflected in the high-interest rate period will continue to show a significant decline this year, just as it did last year" and explained, "With the first half of construction investment falling short of previous expectations, the normalization of the real estate PF market has been delayed, strengthening of lending regulations, and the impact of safety accidents at construction sites may slow the recovery of construction investment, so this year's construction investment growth rate has been downward revised by 3.9 percentage points."
Consumption, which has been sluggish for a long time, is expected to rise slightly. KDI's observation states, "With the decline in interest rates and consumption stimulus measures, consumption is expected to grow by 1.3% this year and 1.5% next year, as the sluggishness eases after the second half of this year."
KDI assessed the growth rate improvement effect of the 30 trillion won second supplementary budget at 0.1 percentage points. Jeong Gyu-cheol, head of KDI's Economic Outlook Office, said, "This second supplementary budget has the effect of raising the annual growth rate by about 0.1 percentage points," adding, "The scale of the supplementary budget itself was much larger than 0.1% of GDP. This means that the scale of the supplementary budget did not all lead to additional expenditure."
Exports have shown relatively good performance despite uncertainties from Trump-era trade issues. KDI had projected in May that South Korea's total export growth rate would be limited to 0.3% due to trade uncertainties, but revised it upward to 2.1%, an increase of 1.8 percentage points. The growth rate of merchandise exports was also revised upward by 1.6 percentage points from the previous forecast of -0.4% to a projected 1.2% positive growth. KDI explained, "We have adjusted the global semiconductor market premise upward," noting that "the preemptive export effects have also been significantly reflected compared to the previous forecast."
The employment forecast has also been significantly upgraded. KDI previously estimated the increase in the number of employed persons this year at 90,000 in May but revised it upward to 150,000, an increase of 60,000. Kim Ji-yeon, head of KDI's Economic Outlook Office, explained, "There was a tendency to underestimate the impact of government job programs during the May forecast," adding, "Government job programs are expected to have an impact increasing the number of employed persons by about 100,000. The upward revision of the consumption forecast also reflects the possibility of a positive effect on employment in the service industry."
The consumer price index forecast has also been revised upward. The inflation rate, which was expected to be 1.7% three months ago, has been increased by 0.3 percentage points to 2.0%. KDI explained, "We have raised this year's consumer price increase forecast by adjusting the international oil price assumptions and the private consumption forecast."