South Korea sees slower economic recovery, inflation cooldown

Office workers look at their mobile phones to check the local online banking app Toss as they gather at Seoul Museum of Art during a lunch break in Seoul, South Korea, April 13, 2023. REUTERS/Kim Hong-Ji/File photo

SEOUL  – South Korea’s government will put its focus on supporting people’s livelihoods and managing risk factors, as it cut the country’s 2024 GDP forecast and raised its inflation projection.

In its biannual economic policy plan released on Thursday, the finance ministry expected the economy to grow 2.2 percent in 2024, down from 2.4 percent seen in July, after expanding 1.4 percent in 2023 which was a three-year low.

The ministry expected consumer prices to rise 2.6 percent this year, up from its previous forecast of 2.3 percent . In 2023, prices rose 3.6 percent .

“The economic recovery will be stronger (than last year) amid improvements in global trade and demand for semiconductors, but there will be difficulties in domestic demand and people’s livelihoods due to persistently high inflation and interest rates,” the ministry said.

READ: South Korea inflation eased for second month in December

The government will primarily focus on economic recovery for the common people, while managing potential risk factors, it said.

South Korea’s exports rose for a third straight month in December as demand for chips started to pick up, raising hopes for an economic recovery driven by semiconductor exports.

The country’s central bank has maintained its policy interest rate at 3.5 percent , the highest since late 2008, since the last hike in January 2023, in its continued fight against slowly easing, but still high inflation.

The finance ministry said it aims to bring down inflation, which stood at 3.2 percent in December, to the 2 percent level within the first half of 2024, with more policy measures, such as tax and tariff cuts, and freezing public utility costs.

READ: Bank of Korea seen holding rates at 3.5% until at least mid-2024

To boost consumption, the government plans to raise tax exemptions on credit card spending and continue efforts to attract more foreign tourists, including the exemption of visa issuance fees for group tourists from China and other Asian countries.

For companies, the ministry said it will introduce new temporary tax cuts on investments in research and development and extend existing tax breaks on facility investments until end-2024.

The ministry said it will expand liquidity support measures if needed to prevent a credit crunch in builders and real estate projects. Last month, a mid-sized builder applied for a debt restructuring, raising concerns over the construction sector.