2017 & Mid-term Economic Outlook
September 19, 2016
Macro Economic Analysis Division of the Economic Analysis Division
The Korean economy is projected to grow 2.7% in 2017 with increases in exports spurred by economic recovery in other countries and with tepid private consumption and domestic demand. Exports are forecast to increase 2.2% on the back of favorable global economic conditions such as the growth of the global economy and global trade volumes, and facility investment is estimated to grow 3.0% with exports lifted from protracted weakness and mitigation of overseas uncertainties. Meanwhile, private consumption is forecast to grow 2.2%, lower than the figure in 2016 (estimated at 2.3%), due to structural issues such as the growing burden of household debt and the increasing propensity to save, while low economic growth and restructuring of business will undercut consumer sentiment. Construction investment is estimated to grow 2.1%, a sharp drop from 2016 (estimated at 6.8%) with weak civil engineering and housing investment stemming from the imbalance between supply and demand and the government’s control of housing supply. The contribution of domestic consumption to the economy in 2017 is estimated to be 2.5%p, lower than the previous year due to weak private consumption and construction investment, while the contribution of net exports is forecast to grow to 0.2%p, driven by increases in exports. Nominal GDP growth in 2017 will be 3.9%, lower than that in 2016 (estimated at 4.0%), which is attributable to the sagging GDP deflator growth under worsening trade conditions in the midst of rising oil prices. Korea's per capita GDP, which was USD 27,214 in 2015, is expected to enter the USD 30,000 range with USD 31,744 in 2018 and then USD 34,600 in 2020.
In 2017, the current account balance is projected to record a significant surplus (around USD 90 billion) although the surplus margin will shrink from the previous year due to rising imports of goods and appreciation of the won. With respect to employment, the number of jobs created is projected to be only just above 300,000, despite being the focus of policy operations, due to moderate economic recovery and the limitations of job creation centered on women, the middle-aged or older laborers, and some service sectors. Inflation is projected to average 1.6% in 2017, affected by oil price hikes and the base effect. In 2017, the yield for Korean three-year treasury bonds is forecast to grow 1.7%, higher than that in 2016 (forecast at 1.4% on an annual average), given domestic inflation conditions and US interest rate hikes. The won-dollar exchange rate is expected to remain at an annual average of KRW 1,110 in 2017 due to the current balance surplus and the influx of foreign investment funds.
For a medium-term economic outlook over the five year period of 2016-2020, real GDP is projected to grow at an average annual rate of some 2.9% influenced by demographic changes and decreases in potential growth rate, along with slower growth of capital input and retarded global economic growth. During the same period, the potential growth rate is forecast to falter from the low 3% range to the high 2% range as the contribution to growth of total factor productivity increases by a small margin while the contributions of capital and labor decrease.