South Korea's Economy Poised for Robust Growth in 2024

South Korea's economy is expected to outperform expectations in 2024, with the central bank governor preparing to raise the country's growth forecast from 2.1%. The nation's exports have seen a 9.7% increase, driven by the recovery of key exports like semiconductors and a robust domestic rebound.

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Mazhar Abbas
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South Korea's Economy Poised for Robust Growth in 2024

South Korea's Economy Poised for Robust Growth in 2024

South Korea's economy is set to outperform expectations in 2024, with the central bank governor, Rhee Chang-yong, preparing to raise the country's growth forecast from the current 2.1%. The nation's economic resurgence comes on the heels of its fastest expansion in over two years during the first quarter.

Why this matters: A strong economic growth in South Korea can have a positive impact on the global economy, particularly in the Asian region, and can also influence the country's diplomatic and trade relationships with other nations. Additionally, South Korea's growth can serve as a model for other countries seeking to boost their economies.

The Organization for Economic Cooperation and Development (OECD) has also revised its growth projections for South Korea, boosting the 2024 forecast by 0.4 percentage points to 2.6%. This figure surpasses the outlooks provided by the International Monetary Fund (2.3%) and the South Korean government (2.2%), making it the highest growth projection among countries with a gross national income per capita exceeding $20,000.

Several factors are fueling South Korea's economic resurgence, including the recovery of key exports like semiconductors and a robust domestic rebound driven by consumption, construction, and investment. From January to April, the nation's exports reached $220 billion, marking a 9.7% increase compared to the previous year. April alone saw a remarkable 13.8% year-on-year jump, with exports totaling $56.2 billion.

In response to the promising economic outlook, the South Korean government is taking proactive measures to support and protect strategic industries. Sung Tae-yoon, director of national policy for President Yoon Suk Yeol, emphasized the need for a unified approach, stating, "(South Korea) won't be able to sustain victory in the battlefield of countries pouring efforts on key industries, without removing barriers between ministries and local governments when it comes to handling affairs related to national strategic industries."

The presidential office plans to establish a pan-governmental task force to safeguard the country's strategic industries and promote collaboration among government bodies. Additionally, a new presidential body will be formed to maintain thegrowthof the consumer price index below 3%, following the 2.9% increase announced on Thursday.

On a global scale, the economic outlook is also showing signs of improvement. Growth remains modest, and inflation is falling faster than initially projected. Private sector confidence is on the rise, and supply and demand imbalances in labor markets are easing, with unemployment rates remaining at or near record lows. As inflation moderates, real incomes have started to turn up, and trade growth has entered positive territory.

The OECD projects global GDP growth to remain steady at 3.1% in 2024, unchanged from 2023, before slightly increasing to 3.2% in 2025. This growth will be supported by stronger real income growth and lower policy interest rates. However, the overall macroeconomic policy mix is expected to remain restrictive in most economies, with real interest rates declining only gradually and mild fiscal consolidation occurring in most countries over the next two years. China stands as an exception, with low interest rates and significant additional fiscal support likely in 2024 and 2025.

Despite the positive indicators, risks and challenges persist. High geopolitical tensions remain a significant near-term adverse risk, particularly if conflicts in the Middle East were to intensify and disrupt energy and financial markets. Further reductions in inflation may be slower than expected if cost pressures and margins remain elevated, especially in the services sector. Moreover, debt service burdens are already high and could rise further as low-yielding debt is rolled over or as fixed-term borrowing rates are renegotiated.

To address these challenges, policymakers must prioritize ensuring a durable reduction in inflation, establishing a fiscal path that addresses rising pressures, and undertaking reforms to raise sustainable and inclusive growth in the medium term. Monetary policy needs to remain prudent to ensure that underlying inflationary pressures are durably contained. Governments face mounting fiscal challenges from rising debt and sizeable additional spending pressures stemming from aging populations, climate change mitigation and adaptation, defense, and the need to finance new reforms.

As South Korea rides the wave of economic growth, the nation stands ready to capitalize on its strengths and confront the challenges that lie ahead. With strategic government support, a thriving export sector, and a resilient domestic economy, South Korea is well-positioned to maintain its upward trajectory in 2024 and beyond.

Key Takeaways

  • South Korea's economy to outperform expectations in 2024, growth forecast to rise above 2.1%.
  • OECD revises growth projection to 2.6%, surpassing IMF and government outlooks.
  • Exports and domestic consumption drive growth, with 9.7% increase in exports from Jan-Apr.
  • Government to establish task force to support strategic industries and maintain low inflation.
  • Global economy shows signs of improvement, with growth steady at 3.1% in 2024, according to OECD.