The Finance Ministry predicts the South Korean economy will grow 2.4% next year, a 0.4% rise from an estimated 2.0% this year thanks to a recovery in the global economy, an improved outlook for semiconductors and expansionary policies.
It was a typically rosy outlook from Seoul. The forecast by the government of Asia’s fourth-largest economy for 2020, however, was higher than the Bank of Korea’s estimate, which was 2.3%, and the market consensus, which was 2.2%.
Some even put the figure as low as 1.8%.
Growth for 2019 was expected to come in at 2.0%, after a year in which the South Korean economy was walloped by the global economic downturn caused by the US-China trade dispute. China and the United State are the export-reliant economy’s two biggest trade partners.
And that was only one half of a double whammy. In addition to a plunge in exports and investments, a brutal and prolonged cyclical downturn in memory chips – Korea’s leading export item – worsened the slowdown.
Seoul bullish on investments
“External conditions are improving as seen in the global leading indicators such as improving PMIs [Purchasing Managers Indices] in October and November,” Vice-Finance Minister Kim Yong-beom said Thursday in a press briefing on next year’s economic policy direction. “Therefore, if our policy efforts work out well, we can achieve 2.4% growth.”
The South Korean government plans to boost investment and exports and anticipates investment projects worth almost 100 trillion won (US$85 billion) in both the public and private sectors. It will also undertake 4.5 trillion won worth of funding programs for facility investments, applying low lending rates and enhancing tax benefits.
“We have so far confirmed 95 trillion worth of public and private investment projects to be executed next year,” a finance ministry official told Asia Times. “The projects include building roads and harbors, power plants and public lease houses in the public sector, and the construction of petrochemical and lithium-ion battery plants [in the private sector].”
The government also plans to ease investment regulations, including regulations in free economic zones, in the first half of 2020.
To boost consumption, the government plans to attract 20 million tourists to South Korea, taking advantage of K-pop and K-beauty. In 2018, the last year for which full numbers are available, 15.3 million tourists visited.
An expansionary fiscal policy is also expected to help push growth northward as Seoul will increase its fiscal spending to 512.3 trillion won ($440.2 billion), marking a hefty 9.1% rise from this year.
Seoul is aiming for fast results – the government plans to spend 62% of next year’s total budget in the first half.
Trends upbeat across the board
Exports are expected to recover thanks to an improved world economic outlook – notably due to the easing of the China-US trade war, following the G1 and G2 powers’ “Phase 1” deal – and due to an upturn in the chip sector.
The finance ministry expects exports to rise 3.0% next year, recovering from an estimated 10.6% fall this year. Korea’s monthly export numbers had been falling since December 2018, but have risen 7.7% in the first 10 days of December 2019, lifting expectations for a recovery.
The World Trade Organization expects global trade growth to increase by 2.7% next year, compared with 1.2% this year.
The memory chip market is also expected to grow 4.1% to $110.3 billion in 2020 from $105.9 billion in 2019, industry research organization the World Semiconductor Trade Statics Semiconductor Market Forecast reported on December 3.
That would be a welcome turnaround from 2019 – though it would still not match 2018’s bumper year. The memory chip market is expected to have decreased by 33.0% by the end of 2019, from its $157.9 billion size in 2018, according to the research group.
The finance ministry expects South Korea’s facilities investments to increase by 5.2%, recovering from an estimated 7.7% fall this year, as investments in the IT sector are expected to expand. Investments in intellectual property are also expected to rise by 4.0% next year due to expanding R&D expenditure.
Private consumption is expected to rise by 2.1% as real purchasing power improves, and consumer sentiment recovers. And Seoul is targeting job growth of about 250,000 next year, with the government’s budget to promote employment growing by 4.3 trillion won.
However, construction is expected to decline by 2.4%, despite increasing public SOC investment.
The Organization for Economic Cooperation and Development predicted that the South Korean economy would grow 2.3% next year, while the International Monetary Fund forecasts 2.2%. Some global finance sector players are also upbeat: Capital Economics forecasts 2.5% Korean growth in 2019 and DBS forecasts 2.4%.
Private sector players in South Korea, however, were more cagey in their forecasts. Experts on the ground faulted the government for over-egging the pudding.
Lee Sang-jae, an economist of Eugene Investment and Securities, told Asia Times: “The Korean government’s rosy economic outlook is based upon the expectation that the global economy is recovering. But there should be huge luck for the government to achieve the economic growth of 2.4%.”
Lee, who personally forecasts South Korea’s GDP growth of 2.1% next year, added: “The government’s forecast is well above the 2.0%-2.2% range of local economists.”
The South Korean economists are not alone in their gloomier predictions: Societe Generale and UBS both forecast 1.9% growth and Bank of America Merrill Lynch predicts 1.8%.