The government said on the 14th that it will raise this year's economic growth target to 3% from 2%. If realized, it would be the highest in five years since 2021 (4.7%), when the government implemented expansionary fiscal policy to boost the economy right after COVID-19. The government predicted that this year's current account surplus will hit a "record high" of $290 billion as exports of semiconductors by Samsung Electronics and SK hynix surge.
The government also projected that this year's nominal growth rate will be 12.3%, the highest in 30 years since 1996 (12.3%). The nominal growth rate reflects export prices. It captures the recent situation in which export volumes and prices are rising together amid a surge in semiconductor demand. A higher nominal growth rate means the size of our economy is growing, but there is also concern that the economic benefits may be concentrated among some large corporations and their employees. Concerns about consumer prices have also grown, as the government raised its projection for this year's consumer price inflation to 2.6% from 2.1%.
◇ With a semiconductor boom, aiming for 3% real growth
In its "second-half economic growth strategy" released that day, the Ministry of Finance and Economy raised this year's real gross domestic product (GDP) growth forecast to 3% from 2%, announced in Jan. The growth forecast for next year was presented for the first time at 2.2%.
A senior government official said, "Real GDP in the first quarter grew 1.8% from the previous quarter, the highest since the third quarter of 2020 (2.3%)," and added, "GDP may soften somewhat in the second quarter due to base effects, but export performance is better than expected and industrial activity and consumption indicators are improving, so the overall growth momentum will continue."
The government more than doubled its projection for this year's current account surplus to $290 billion from $135 billion. With a surge in semiconductor exports, the cumulative trade balance for January–May posted a surplus of $101.91 billion, surpassing the previous annual record surplus of $95.2 billion in 2017.
◇ Nominal GDP expected to grow the most in 30 years... Managing prices and jobs remains a task
The government sharply raised this year's nominal growth rate, which reflects export prices, to 12.3% from 4.9%. The 12.3% is the highest in 30 years since 1996 (12.3%). A Ministry of Finance and Economy official said, "Growth in nominal GDP means the terms of trade have improved, implying profitability for our corporations will improve, and it can spill over across the broader economy."
Nominal GDP is also used to calculate the government debt ratio and per capita gross national income (GNI). When nominal GDP grows sharply, these indicators improve. Externally, Korea's fiscal soundness can be seen as having improved, and it can be cited as evidence that households' livelihoods have gotten better.
The problem is that the likelihood of higher consumer prices has increased. The government raised its projection for this year's consumer price inflation to 2.6% from 2.1%, well above the Bank of Korea's medium-term inflation target of 2%. The impact of the Middle East crisis has persisted, keeping international oil and agricultural prices elevated.
It is also a problem that the number of employed people is not increasing much. In Jan., the government had expected the number of employed to increase by 160,000 this year, but it has now revised that down to 150,000. A government official said, "Despite stronger growth momentum, corporations' earnings were weak in April–May due to the Middle East war, and the recovery in construction is being delayed."