Economic Forecast for 2019
Published on 29 March 2019
Published by Macro-Economic Analysis Division of the Economic Analysis Bureau
The Korean economy is expected to grow by 2.5% in 2019, a lower rate than that of the previous year, due to the continued weakening of private consumption, underperforming construction industry and lower export growth rates. Global economic conditions are also expected to suppress domestic economic growth as growth weakens in regions such as the US, China and the Eurozone, while global trade volume decreases due to the impact of trade conflicts. By sector, private consumption is likely to weaken due to the challenging employment and income conditions, and construction investments are expected to remain low, just as in the previous year, given that the leading indicators for construction exhibit a declining trend as the construction industry is slowing down. Plant and equipment investments are expected to stage a rebound backed by the gradual recovery of the IT sector in the second half and due to the base effect incurred by last year’s weak investment climate, but uncertainty remains high. Exports are expected to exhibit a lower increase rate due to reasons such as adjustments in import demand for major export goods including semiconductors, while the global growth rate and trade volume increase rate fall. The current account balance is expected to record a surplus of around 69 billion dollars per year due to the reduced surplus volume of goods balance and increased deficit of the balance of services, primary income and secondary income. While employment remains low in major sectors such as the manufacturing and services sectors, the number of employed is expected to increase by a slightly higher rate due to the strengthened government support for job creation, increased number of foreign tourists, etc. Consumer price inflation rate is expected to reach 1.3%, which is lower than that of the previous year, as minute inflationary pressures are exhibited on the demand and supply sides. The treasury bond interest rate is expected to fall to 1.9%, lower than that of the previous year due to reasons including the deteriorating domestic economy and lower consumer price inflation rate. The won-to-dollar exchange rate is expected to record an annual average exchange rate of 1,105won to the dollar, slightly higher than that of the previous year, due to an economic slowdown on the domestic front and increased external economic uncertainty.
This year, the domestic economy is characterized by a high degree of uncertainty as both upside and downside risks exist regarding the growth rate forecast, depending on the outcome of US-China trade negotiations, the direction of the Brexit decision, the economic slowdown of the Eurozone as well as geopolitical risks. Therefore, in order for the Korean economy to maintain steady growth, parallel efforts should be made through a systematic policy response to short-term risk factors as well as efforts to enhance growth potential by promoting innovation and improving economic soundness.