By Yoon Ja-young
The country’s economy is expected to grow 3 percent next year on the recovery of exports. Steel and shipbuilding, however, will continue to record minus growth, according to a leading economic think tank.
The Korea Institute for Industrial Economics and Trade (KIET) released its economic and industrial outlook for 2016, Wednesday, in which it predicted exports to increase 2.1 percent from this year. With total exports standing at $543.6 billion and imports increasing 3 percent to $457.5 billion, the country is expected to see a trade surplus of $86.1 billion.
It expects the GDP to grow 3 percent.
“The economy will mark around 3 percent growth, slightly higher than this year’s, as exports pick up and domestic consumption slowly increases thanks to low oil prices and low interest rates,” the report noted. KIET expects GDP to rise by 2.6 percent this year.
Private consumption will increase 2 percent while construction investment will expand 2.9 percent and facility investment 4.2 percent. Housing prices and household debt were cited as obstacles to further recovery of private consumption.
KIET explained that the direction of the economy will be determined by external factors including the United States’ key rate hike and the slowdown of China.
“The slowing growth of China will have a notably negative impact on Korea’s exports to China in sectors like machinery, textiles, oil and steel,” the report noted. “The strengthening competitive edge of China’s main industries will also work negatively on Korea’s main export items, except for automobiles and semiconductors,” it added.
KIET expects exports of home electronics to expand 6.3 percent next year thanks to the Olympics scheduled in Brazil. Recovering demand in developed economies will pull up Korea’s automobile exports by 2.4 percent and IT device exports will also expand by 2.9 percent thanks to increasing demand for mobile phone components and solid state drives (SSD).
It will be cloudy, however, for shipbuilders and steelmakers, which have been the main pillars of the Korean economy. The slowdown in China and trade protectionism will pull down Korea’s steel exports by 3.9 percent, according to KIET. Shipbuilders will also see a 4.9 percent decrease in exports.
The institute expected global oil prices to hover around $55.1 per barrel next year, up 5.7 percent from this year. The average won/dollar rate is expected to be 1,150 won per U.S. dollar. The key rate hike in the United States will strengthen the dollar, but the ongoing current account surplus in Korea will work against further appreciation of the American currency.