2024 and Mid-Term Economic Outlook

Published on Oct., 5, 2023
Published by Economic Analysis Department

    The 「2024 and Mid-Term Economic Outlook Series」have been prepared to support the National Assembly in its legislative activities, including a review of budgets and settlement, with a comprehensive forecast of the Republic of Korea’s economic landscape over the next five years (2023-2027). These series provide economic analyses and projections from various angles that have been segmented into four key categories: expenditure, production, income, and growth.
   For 2023 and 2024, economic growth is projected to be 1.1% and 2.0%, respectively. The economic growth rate is expected to increase as driven by exports, aligning with the global economic recovery that is forecasted to commence after the fourth quarter of this year. However, the pace of this recovery may be moderated by factors such as the tightening of monetary policies in developed nations. There is concern that China’s economic structural vulnerabilities and the outlook for a significant tax revenue deficit may introduce risks that exert downward pressure. The Chinese economy has exposed a weakness of being overly dependent (about 25%) on the real estate-related industries due to the recent debt default situations. Concurrently, as of July 2023, the Republic of Korea noted a decline in national tax revenue (cumulative), with a year-on-year (YoY) decrease of KRW 43.4 trillion with a notably subpar financial execution rate in the current transfer of local governments.
   Within the production category, the subject of this outlook is the value addedwithin principal industries, such as manufacturing. The real value added of the manufacturing industry in 2024 is projected to grow 2.2% YoY. This is attributed primarily to an increase in trade volume driven by global economic recovery and the rebound in exports due to the surging demand for semiconductors from the IT sector, collectively contributing to an upward trajectory in the growth of the manufacturing industry. However, downward pressures— from the lagging recovery trend of exports to China, subdued global demand stemming from financial instability and credit constraints, and the volatility in raw material costs and international oil prices - are relatively dominant, and the expansion of the manufacturing industry is expected to be limited.
   Within the income category, the subjects of this outlook include GDP by income approach, labor and wage, and population. The compensation of employees relative to GDP is projected to reach a peak of 48.5% by 2023, subsequently exhibiting a stable decline that is attributed to an increase in the employee count coupled with a deceleration in wage growth. Over the next five years, the number of employees is expected to expand at an annual average rate of 0.7%, thus reducing the rate of increase compared to the past five years. Conversely, as the proportion of fixed capital consumption escalates in relation to GDP, the rate of National Disposable Income (NDI) growth is expected to be pulled below the rate of economic growth, constraining both consumption and savings. The ratios of net taxes on production and imports relative to GDP are projected to taper off to 9.5% in 2023, reflecting contractions in both consumption and foreign transactions. On the demographic front, total population, influenced by the decline in fertility rates, is forecasted to diminish by an annual average of 0.14% over the forthcoming five-year period.
   In the growth category, projections have been provided for the potential growth rate, interest rates, and greenhouse gas emission volumes. The potential growth rate is forecasted to remain steady at 2.2% during 2023–2024 and to subsequently taper off, stabilizing at 2.1% by 2027. Post-2024, the interest rate on the Treasury bond (three year) is expected to trend downward. Influenced by a shift in the monetary policy orientation of the Bank of Korea, which will increase downward pressure, the interest rate is projected to average 2.9% annually over the forthcoming five years. The greenhouse gas emissions are forecasted to decline by an average of 1.7% annually over the same period.