Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Weak private spending expected to drag down Korean economy, despite exports rebound
A cousumer takes a look at goods displayed at a convenience store in Seoul, Tuesday. Yonhap
By Yi Whan-woo
Private spending in Korea is anticipated to weaken again in 2024 after growing 1.8 percent last year to remain below pre-pandemic levels, according to studies, Friday.
Such protracted weakening is prompting concerns that it may offset the recovery of exports, and broadly affect the country’s economy to expand at a limited pace, given that consumer spending and exports are the twin engines of overall economic growth.
Woori Finance Research Institute forecast private spending to grow 1.5 percent in 2024, down from 1.8 percent in the Bank of Korea’s (BOK) preliminary economic data for 2023.
The growth rate of consumer spending was lower last year than the 2.1 percent in 2019, right before the start of the COVID-19 pandemic.
Private spending shrank 4.8 percent in 2020 but increased 3.6 percent in 2021 and 4.1 percent in 2022.
“Under the circumstances, the high interest rate and high inflation will press households to spend less this year,” the institute said.
On the other hand, the institute forecast exports will grow 6.9 percent — a significant increase from 2.8 percent last year when global demand for chips, cars and other key products began to recover.
The institute correspondingly forecast the 2024 growth outlook for Korea at 2.3 percent, which is the same as the International Monetary Fund’s and higher than the OECD's 2.2 percent.
“But even so, it should be noted the country overall would have more room to expand if private spending does not decline and thus does not offset export recovery,” it noted.
The Korea Development Institute voiced a similar view in its separate study, forecasting private spending to grow 1.7 percent in 2024.
It said facility investments will grow 2.3 percent, down from 2.4 percent in 2023, while projecting investments on construction to shrink 1.4 percent after sliding 1 percent last year.
Hana Institute of Finance said, “Private spending will remain sluggish this year again after serving as a main driver of growth.”