Economic Outlook for 2023 and the Medium-Term

Published on Oct., 5, 2022
Published by Economic Analysis Department

   The domestic economy is expected to grow by 2.5% and 2.1% in 2022 and 2023, respectively, due to slowing global economic growth, global inflation, and key interest rate raises in major countries. Looking at the areas of expenditures, private consumption is expected to demonstrate a solid uptrend in 2022 thanks to recovering consumer sentiment and improved employment conditions, but the growth rate is expected to slow in 2023 due to inflation and interest rate hikes. Although facility investment is expected to be sluggish in 2022 due to growing internal and external uncertainties and worsening semiconductor industry conditions, gradual recovery is expected in 2023 as demand for next-generation technologies increases. Total exports are expected to grow slower than in 2022 due to slowing global economic expansion.
   In the growth and finance sectors, projections regarding the potential growth rate, total factor productivity (TFP), and interest rates were made, and the potential growth rate in 2022-2026, impacted by the marked decline in TFP, is expected to log an annual average growth rate of 2.2%. The interest rate on treasury bonds (at 3-year maturity) for 2022-2026 averages 2.8%, which is expected to be higher than what it was in the previous five years (2017-2021) due to the tightening monetary policies in major countries and the base rate hikes by the Bank of Korea.
   In the production sector, projections for manufacturing, service, construction, and electricity/gas and water industries were made as well. In 2023, excluding the construction industry (-0.1%), the added value for manufacturing (2.3%), service (2.2%), and electricity/gas and water (1.7%) industries is expected to increase. However, the uptrend in added value in the manufacturing and service industries is expected to be stagnant compared to 2022 due to the slowdown in export growth following global downward pressure and the tightening monetary policies of major countries.
   In terms of income and population/employment, projections were made regarding changes in population and employment as well as in the structure in which annual added value is distributed among households, businesses, and the government. Compensation of employees (income distributed to wage earners) is expected to increase by 8.3% in 2022 and 4.8% in 2023, while operating surplus is expected to decrease slightly in 2022 before increasing in 2023. The total population is estimated to continue to decline by 0.11% per annum in 2022-2026 due to the drop in the total fertility rate. The number of employed persons is expected to increase sharply (2.9%) in 2022 before slowing down to the 0.3-0.4% range starting in 2023.