[2025년 경제정책방향]
Growth forecast for this year lowered from 2.2% to 1.8%
There are great concerns about low growth becoming entrenched in the 1% range… The increase in employment is expected to decrease by 30% compared to last year.
Negative forecast for construction investment for two consecutive years… Governor of the Bank of Korea: “Flexible response to rate of interest rate cuts”
The reason the government has drastically lowered its economic growth forecast for this year is because of concerns that export growth, which has been leading the Korean economy ‘alone’, will slow down. In a situation where all-round economic indicators such as domestic demand, investment, employment, and exchange rates are bottoming out, if even exports fall into a slump, the Korean economy is expected to experience the ‘worst cold wave’ this year.
● Korea’s economic support and export driving force are ‘faltering’
The economic growth rate forecast for this year (1.8%) announced by the government on the 2nd is not only the forecast (1.9%) announced by the Bank of Korea in November last year, but also the Organization for Economic Co-operation and Development (OECD, 2.1%) and the Korea Development Institute (KDI, 2.0%). ), it is at a low level compared to domestic and foreign institutions. It falls short of the potential growth rate (2.0%), which has been steadily declining over the past 10 years.
Kim Jae-hoon, director of the economic policy department at the Ministry of Strategy and Finance, explained, “This is a result of partially reflecting this year’s reduced budget,” and added, “The economic indicators in the fourth quarter of last year (October to December) were lower than expected, which is expected to affect this year’s growth rate.”
The government cited concerns about sluggish exports as the reason for slowing economic growth. Last year, Korea’s exports increased by 8.2%, reaching a record high of $683.8 billion. This year, the growth rate is expected to be only 1.5%. Unfavorable conditions such as the expansion of U.S. protectionism, the intensification of the U.S.-China trade war, and the slowdown in the semiconductor industry are hindering the growth of our exports.
However, Choi Sang-mok, Acting President and Minister of Strategy and Finance, said on this day, “We will reexamine the overall economic conditions during the first quarter (January to March) and seek additional ways to strengthen the economy,” leaving open the possibility of a supplementary budget. An official from the Ministry of Strategy and Finance also said, “We will review various measures (including supplementary budget) to further strengthen the economy.” First, the government decided to provide an additional 20% income deduction up to 1 million won for those who use credit cards more than 5% more in the first half of this year than in the first half of last year (January to June) to stimulate domestic demand.
● Investment/employment ‘alarm sound’… Concerns about low growth becoming entrenched
This year’s government’s economic policy direction has raised alarm bells not only in exports but also in various economic indicators such as investment, employment, and exchange rates. The government forecasts that private consumption, which was slow to recover last year with an increase of 1.2%, will increase by 1.8% this year. This year’s facility investment growth (2.9%) is also expected to be greater than last year’s (1.3%). However, construction investment, which has a large ripple effect on related industries and the local job market, is expected to grow by 1.3% this year as well as last year (-1.5%). As the working-age population decreases and the economic recession prolongs, the increase in the number of employed people this year (120,000 people) is also expected to decrease by 50,000 people (about 30%) compared to last year’s estimate (170,000 people).
The biggest problem is that low growth in the 1% range may become entrenched. Dong-Hyeon Ahn, a professor of economics at Seoul National University, said, “If the weakening global competitiveness of Korean companies and the decline in productivity continue, the growth rate of the Korean economy will fall below 1% in a few years.” Seok Byeong-hoon, professor of economics at Ewha Womans University, also pointed out, “Support for high-tech industries has disappeared due to domestic political uncertainty. If this continues, the potential growth rate, which is the basic stamina of the Korean economy, will decline rapidly, and low growth will become natural for the rest of our lives.”
Additionally, if the growth rate falls to the 1% level and the economy loses vitality, a negative impact on tax revenues this year is inevitable. To meet the national tax revenue projections included in this year’s budget, taxes must be collected more than 44 trillion won more than this year. If tax revenue is insufficient, the policy measures that the government can implement to stimulate the economy will inevitably decrease.
Bank of Korea Governor Lee Chang-yong said in his New Year’s address that day, “The conditions surrounding our economy this year will be more difficult than ever,” and “We will closely examine changes in economic trends and flexibly determine the pace of interest rate cuts this year.” He then ordered a variety of policy responses, saying, “Under the current situation, it is difficult to stabilize our economy with monetary policy alone.” However, Governor Lee said, “It is exaggerated to view our situation, which is similar to the average growth rate forecast (1.8%) of 26 countries with a per capita income of more than $30,000, as a situation such as a foreign exchange crisis or global financial crisis.” A line was drawn.
Sejong = Reporter Soon-gu Jeong [email protected]
Sejong = Reporter Song Hye-mi [email protected]
Sejong = Reporter Kim Soo-yeon [email protected]
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