The Korea Herald


[Editorial] Slow growth concerns

Korea’s GDP grew 1.4% in 2023; outlook filled with uncertainty, disruptive factors

By Korea Herald

Published : Jan. 30, 2024 - 05:30

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When the Bank of Korea announced last week that the country’s real gross domestic product inched up just 1.4 percent in 2023, the reaction from policymakers and the media remained largely the same: dismay and concern.

Although the figure is technically in line with earlier projections from the government and the central bank, it is disappointing that Korea’s economic growth hit the lowest level in three years -- even though there was no profound crisis like the pandemic.

The key economic figure slowed down from 2.6 percent in 2022 and 4.3 percent in 2021, hurt by a slump in exports exacerbated by stubbornly high interest rates across the world. In 2020, Korea suffered a 0.7 percent contraction due to the COVID-19 pandemic.

Experts interpret the latest growth rate, which is below the potential growth rate of 2 percent, as a sign that Korea’s basic economic strength is losing its upward momentum.

The structural economic weakness demonstrated in the GDP figure also suggests that the country might fall into a protracted low-growth trap in the coming years.

A close look at the major sectors of the Korean economy shows that mounting worry is not entirely groundless. Consumption, exports and imports all weakened last year. Both public and private sectors failed to garner meaningful growth. Investments were also weak.

The only reprieve came from the semiconductor industry, which pulled off a recovery in exports from the second half of last year. Thanks to a stronger performance in the chips sector, Korea’s exports grew 2.6 percent in the fourth quarter and facility investments expanded by 3 percent.

The question is whether the recovery trend that started in the second half of 2023 will continue throughout this year. As far as official predictions are concerned, the picture is largely upbeat. The BOK projects the economy will grow about 2 percent this year, while the government sets the yearly growth target at 2.2 percent.

But there are a host of uncertain factors both at home and abroad that could crush the 2 percent growth estimate. For starters, geopolitical conflicts are feared to worsen trade conditions. The World Trade Organization forecast in October that trade growth should pick up to 3.3 percent in 2024, but its chief Ngozi Okonjo-Iweala recently said she was “less optimistic” about world trade this year, citing “worsening geopolitical tensions.”

The Irael-Hamas war in Gaza threatens to spread across the Middle East, while the Ukraine-Russia war continues to put more pressure on neighboring countries. Concerns about Taiwan are also on the rise as China keeps threatening the island's democracy.

Confrontations between the US and China in trade and sensitive technology are a big concern for Korean exporters, which cannot take one side due to the significant trade volume involving both countries. Korean policymakers also worry about changes in trade with the US if Donald Trump wins the presidential election.

On the domestic front, policymakers are struggling to find a way to shore up private consumption. Last year, Korea’s private spending recorded 1.8 percent growth, far lower than the 4.1 percent growth seen in 2022. Government spending also slumped to 1.3 percent from 4 percent during the same period.

Meanwhile, consumers see no reason to open their pockets due to a flurry of negative developments such as high interest rates, snowballing household debt and the sluggish construction sector.

To grapple with such overwhelmingly negative factors, the government must implement all possible measures to bolster consumption and boost exports. Regaining growth momentum is critical now more than ever, as the low-growth trap could be far more painful than expected for the Korean economy.