Revised Economic Outlook for 2016
Published May, 2016
The Korean economy is projected to grow at the annual rate of 2.5% due to overall economic slowdown with the prolonged slump in exports and the delayed recovery of domestic demand. Regarding domestic demand, construction investment will show solid growth, but private consumption and capital investment will likely be slack. Exports are expected to remain sluggish for a considerable period of time as the global demand for imports are unlikely to increase soon due to the slow recovery of the global economy. The nominal GDP growth rate is expected to be at 3.7%, down from 4.9% in the last year mainly due to a sharp slowdown in the GDP deflator growth rate (1.0%p).
Private consumption is expected to grow 2.1%, down from the previous year, due to a reduction in disposable income stemming from a decline in the propensity to consume, an increase in the burden of repayment of principal and interest on household debt, and a rise in housing expenses. However, the rate of slowdown in private consumption is projected to be modest because the re-reduction in individual consumption taxes and regular sales events will help improve consumer confidence, as real income is increasing. Despite the depression in engineering investment, construction investment is forecast to increase 3.7% year on year as investment in residential buildings remains in good condition. Capital investment is expected to increase a mere 0.7% year on year due to the poor export numbers lasting longer than expected and the weakening momentum in economic recovery.
Based on customs clearance, exports are expected to total USD 497.4 billion, down 5.6% from the previous year, due to a slowdown in global economic growth, a decline in trade volumes, falling oil prices, and excess supply; imports are projected to total USD 404.1 billion, down 7.4% from the previous year; and a USD 93.4 billion trade surplus is expected to be posted. In the current account balance, deficits in the services account will likely increase, while a surplus in the goods account is expected to remain large and reach USD 103.9 billion in 2016.
The number of people hired in 2016 marginally increased by around 310,000 persons, up 1.2% year on year, due to weak economic conditions and decreasing capacity to boost employment of women, those at retirement age, and the elderly. The unemployment rate is forecast to be 3.7%. Average annual consumer prices are expected to grow by as low as 1.2% as a result of depressed demand caused by slow growth in the domestic economy and a continued fall in international oil prices. Moreover, yields on three-year government bonds are expected to be 1.6%, a marginal decrease from the previous year as interest rates remain low as a result of the slowdown in the real economy and a low inflation rate. The exchange rate (KRW/USD) is projected to fluctuate in accordance with major variables such as US monetary policy, inflow and outflow of foreign capital, and the nation's sovereign credit rating, and will reach KRW 1,185, which is an increase in the amount of KRW 54 from last year.