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S. Korea's economy expected to grow 1.1 pct in 2023: S&P economist

All News 15:48 May 03, 2023

By Kim Na-young

SEOUL, May 3 (Yonhap) -- South Korea's economy is expected to grow 1.1 percent this year due to weaker global demand, higher interest rates and the waning effects of China's reopening, an economist at S&P Global Ratings said Wednesday.

The growth forecast by Louis Kuijs, the chief economist of Asia-Pacific S&P Global Ratings, is much lower than the 1.6 percent growth outlook projected by the Bank of Korea and the 1.5 percent advance projected by the International Monetary Fund.

In 2022, South Korea's economy expanded 2.6 percent, slowing from a 4.1 percent advance the previous year amid aggressive monetary tightening at home and abroad.

The BOK has said it may lower its growth estimate for the year due to uncertainties over a recovery in the IT sector and a delay in the much-awaited effect of China's reopening.

Kuijs said the South Korean central bank is expected to reduce its policy rate in 2024, though the inflation situation in Korea is less problematic than the United States and Europe as the U.S. Federal Reserve rates are likely to remain elevated.

"In our baseline, 3.5 percent is the end, the terminal rate ... We do not expect the policy rate to come down quickly, not this year, but we do expect from early next year," Kuijs said, noting the U.S. Fed's policy rate also seems to be high enough to rein in inflation steadily and fast as the U.S. economy is cooling down.

In April, the BOK kept its key interest rate unchanged at 3.5 percent for the second straight time following seven consecutive hikes in borrowing costs since April last year when the rate stood at 1.25 percent.

Louis Kuijs (2nd from L), chief economist of Asia-Pacific S&P Global Ratings, speaks at a press conference held in central Seoul on May 3, 2023. (Yonhap)

Louis Kuijs (2nd from L), chief economist of Asia-Pacific S&P Global Ratings, speaks at a press conference held in central Seoul on May 3, 2023. (Yonhap)

On the debt situation, South Korea is one of the countries with the lowest government indebtedness level but the highest level of household debt, Kim Eng Tan, the senior director of Sovereign and International Public Finance Ratings of the credit appraiser.

Tan said the household debt will not likely trigger a crisis but the situation can make the country lose momentum in domestic growth as more household income will be used to pay debt.

On the corporate outlook, analysts said the credit qualities of Asian-Pacific companies have been stabilizing after turbulence in 2022 due to better growth prospects following the post-pandemic lifting of restrictions on mobility and easing of inflationary pressures, but the Korean corporate credit trend has continued to weaken from mid-2022.

The debt load of the top 100 Korean listed firms has increased since the second half of last year and operating profits have deteriorated in many sectors, most notably in technology, utilities, steel and oil and chemicals, according to data provided by the S&P.

The semiconductor industry is facing the most difficulties, with the display and utilities sectors in unfavorable conditions, Park Jun-hong, Asia-Pacific director of corporate ratings, said, noting that domestic chipmakers SK hynix Inc. and Samsung Electronics Co. and leading panel maker LG Display Co. have suffered severe operating losses due to supply glut and waning global demand.

Park expected the grim outlook for the chips industry to continue into the second quarter before possibly rebounding in the third quarter in a cyclical upturn, but pointed out the Korean chipmakers will likely face challenges as they are directly exposed to the chip war between the U.S. and China.


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