Korean Economic and Industrial Outlook for the Second Half of 2023

The Korea Institute for Industrial Economics and Trade publishes major projections for Korean economic performance in Industrial Economic Review. For more detailed data, visit us at www.kiet.re.kr/en. In the first half (H1) of 2023, the domestic real economy in Korea demonstrated a solid growth trajectory, despite global uncertainties and sluggish export performance since the end of 2022. But various factors are set to hamstring the growth of the global economy this year, including the Ukraine conflict, problems in the finance sector, and slack domestic demand triggered by interest rate hikes. International oil prices are projected to remain lower in H2 compared to H1, with demand growth stifled and oil output steady. Furthermore, the USD/KRW exchange rate in H2 should remain lower than the highs set in the first half of the year. The US Federal Reserve (Fed) decision to keep interest rates unchanged and the alleviation of financial market risks have contributed to the weakening of the dollar. Looking ahead to H2 2023, the domestic economy is expected to face challenges stemming from a global economic slowdown and a sustained decline in trade volume. These factors may hinder export growth. In addition, a contraction in domestic demand resulting from the impact of interest rate hikes is likely to cap economic growth at a modest rate of around 1.4 percent. In H2 2023, exports of Korea’s 13 flagship industries are expected to decline by 4.3 percent year over year (YoY), reflecting an accelerated decline from last year, when exports fell 3.2 percent. This decline can be attributed to weak demand from key export partners suffering from continued economic hardship. And while the shipbuilding, ICT devices, and rechargeable batteries sectors are showing some resilience, domestic demand in the other flagship sectors is projected to experience slower growth or decline. Production in every major industry save only for the shipbuilding, steel, and rechargeable batteries sectors is expected to either stagnate or decline. This owes to sluggish domestic and export demand, excess inventory, and the continued relocation of production facilities to locations overseas. Imports are also set to fall in Korea’s 13 flagship industries for H2 2023, by 4.9 percent, due to by falling prices and a slowdown in domestic economic activity.