Revised Economic Outlook for 2017
June 29, 2017
Economic Policy Analysis Division of the Economic Analysis Office
Real GDP for 2017 is projected to rise 2.9%, primarily helped by the strength of the exports and the capital investment, as well as the recovering global economy. Private consumption is expected to grow by a mere 2.0% due to meager improvement in household income and structural factors including the declining average propensity to consume and household debt. Despite the slowdown in investment in residential real estate sector caused by the restraints on housing finance and the reduction in investment in social overhead capital, construction investment is projected to continue to rise 6.5% because of the an increase in investment in non-residential building construction in response to the turnaround in the economy. Capital investment is expected to escape the previous year's stagnation and thus rise 6.7% on the strength of the recovery in exports.
The contributions of both private consumption and construction investment to economic growth are expected to decline year-on-year. In contrast, the contribution of capital investment to economic growth will likely increase this year after decreasing last year, and that of exports will likely increase sharply. Nominal GDP is anticipated to grow 4.3%, down from 4.7% in the last year, as the GDP deflator growth rate is expected to fall due to the deterioration in the terms of trade. However, real GDP growth is expected to be slightly higher than the last year.
Exports on a customs clearance basis are expected to rise at a robust annual rate of 11.1% in 2017. The reasons are increasing demand in both advanced countries and emerging markets and developing economies, and unit prices of major exports such as semiconductors and petroleum products are rising as well. Imports on a customs clearance basis are expected to increase at the annual rate of 15.1% due to a rise in prices of imported raw materials and an increase in production and investment. A trade surplus of about USD 83 billion is forecast, down from USD 89.2 billion last year, because import growth will likely outstrip export growth. The current account balance is forecast at about USD 87.1 billion, down from USD 98.7 billion last year, as deficits in the services account are expected to increase. The surplus in the goods account will likely remain high.
The number of workers hired in 2017 is expected to marginally increase by 1.3% to around 330,000 persons, up from 300,000 in the last year due to the recovery in construction, a smaller decline in the number of workers hired by the manufacturing sector, and expansion of job creation programs in the public sector. The unemployment rate is expected to be at 3.8%. Consumer prices are forecast to rise 1.9%, up from 1.0% in the last year, as a result of the inflationary pressures on the supply side such as higher oil prices and prices of agricultural, livestock, and fishery products. The average annual yields on three-year government bonds are expected to be 1.8%, up from 1.4% in the last year, due to the increase in the benchmark US federal funds rate and the recovery in the global economy. The KRW/USD exchange rate is projected to reach KRW 1,130, an increase of KRW 31 from last year as a result of an increase in foreign investment in domestic securities which is caused by the turnaround in the domestic and global economies and easing of the strong US dollar.