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The Ministry of Economy and Finance noted South Korea's export and investment would face difficulty next year on the back of the global economic slump, lower semiconductor demand, worsened funding market conditions and weaker housing demand.
South Korea on Wednesday revised down its 2023 economic growth outlook amid rising worries about a global economic downturn.
Real gross domestic product (GDP), adjusted for inflation, was forecast to expand by 1.6 percent in 2023, according to the Ministry of Economy and Finance.
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It was down 0.9 percentage points compared to the estimate unveiled six months earlier and lower than outlooks of 1.8 percent from the Organization for Economic Cooperation and Development and 1.7 percent from the Bank of Korea.
This year's growth outlook was slightly lowered to 2.5 percent from the previous 2.6 percent.
The ministry said the global economic growth would weaken sharply next year on rapid interest rate hikes in major economies that may crimp global demand and trade as well as the manufacturing industry.
It noted that South Korea's export and investment would face difficulty next year on the back of the global economic slump, lower semiconductor demand, worsened funding market conditions and weaker housing demand.
Private consumption was expected to recover in 2023 on higher demand for face-to-face services, but the recovering pace would be modest due to larger debt-servicing burden for households, the faltering job market and lower asset prices.
Export, which accounts for about half of the South Korean economy, was predicted to decline 4.5 percent next year after increasing 6.6 percent this year.
Import was forecast to shrink 6.4 percent in 2023 on energy prices fall and soft demand for intermediary and capital goods.
Outlook for Dubai crude, South Korea's benchmark, was set at 88 U.S. dollars per barrel in 2023, lower than the estimate of 96 dollars in 2022.
The current account surplus was expected to fall from 22 billion dollars in 2022 to 21 billion dollars in 2023.
Private consumption, another growth engine of the economy, was projected to gain 2.5 percent in 2023 after soaring 4.6 percent in 2022 on the pent-up demand amid the COVID-19 pandemic.
Facility investment was forecast to diminish 1.8 percent in 2022 and 2.8 percent in 2023 owing to growing economic uncertainties at home and abroad.
Investment in the construction sector was predicted to slump 3.0 percent in 2022 and 0.4 percent in 2023 amid the sluggish real estate market and higher borrowing costs.
Headline inflation was expected to slow down from 5.1 percent in 2022 to 3.5 percent in 2023 due to lower energy prices and weaker global demand.
To counter high inflation, the country's central bank began to tighten its monetary policy stance in August last year, hiking its benchmark interest rate from a record low of 0.50 percent to 3.25 percent.
The number of jobs was forecast to add 100,000 in 2023 after surging 810,000 in 2022.
The employment rate for those aged 15-64 was projected to rise from 68.5 percent in 2022 to 68.7 percent in 2023, while the jobless rate was predicted to gain from 3.0 percent to 3.2 percent.