Economic Forecast for 2020 and the Medium-Term
Published on 30 September 2019
Published by Macro-Economic Analysis Division of the Economic Analysis Bureau
In 2020, the Korean economy is expected to grow by 2.3% as sluggish domestic demand recovers and exports increase slightly. Despite some improvement in terms of income, private consumption is expected to increase by a lower rate than economic growth, due to sluggish wage growth rates and weakened consumer sentiment. Investments in construction have declined over 2018-2019, and this trend is expected to continue throughout 2020, mainly with respect to residential buildings, with a reduced level of decline. Plant and equipment investments reversed course and are now increasing due to the base effect of a long-term slump, but the expansion in investments is expected to be limited due to the
low capacity utilization rate of the manufacturing industry and increased uncertainty at home and abroad. Export volumes are expected to rise compared to the previous year thanks to a gradual recovery of the global economy and trade volume. However, as potential risk factors remain such as the US-China trade dispute, the Chinese economic slowdown, a no-deal Brexit and strengthened Japanese export regulations, uncertainty is high in terms of export outlook.
The real GDP in the medium-term (2019-2023) is expected to grow annually by 2.3% on average, 0.7%p lower than that of the previous five years (2014-2018), with a slowdown in the increase of private consumption and investments. In terms of areas of expenditures, private consumption will be reduced due to weakened growth, while plant and equipment investments will drop significantly amid a continuing sluggish trend in construction investments, compared to the previous five years. This is because investments are deemed to serve as the most significant factor contributing to the slowdown of economic growth.
Korea’s annual potential growth rate for the next five years is expected to be around 2.4% on average, as capital contribution drops by a significant rate due to sluggish investments amid stagnant labor input and total factor productivity. This is a 0.5%p drop from the previous five years (2014-2018). Korea’s annual potential growth rate has been steadily declining since the 2000s. In particular, the pace of the decline has further accelerated since the financial crisis, due to the aging of the working population, weak corporate investment and sliding total factor productivity.