S.Korea sees steady recovery, slightly increases 2022 growth forecast

South Korea expects the economy to grow steadily in 2022, as domestic demand rebounds and export sales remain strong, but said it would continue to provide fiscal stimulus to help accelerate the pace of the recovery.

The finance ministry revised its 2021 growth forecast a bit lower but slightly upgraded its 2022 economic outlook in its bi-annual economic policy report.

Gross domestic product is expected to expand 3.1% next year, versus a previous forecast for 3.0% growth, the finance ministry said. It expects the economy to expand 4.0% this year, at its fastest pace in 11 years, compared to a previous forecast for 4.2% growth.

“We expect the economy to sustain solid growth in 2022. The economic normalisation will speed up thanks to an even growth in domestic demand and exports,” Vice Finance Minister Lee Eog-won told an embargoed news conference on Friday.

South Korea’s economy grew at a slower-than-expected pace in the third quarter, as robust exports were offset by weak domestic demand and construction and facility investments, data from the Bank of Korea showed in October.

But consumption is expected to rebound after the government eased coronavirus restrictions last month, though South Korea reinstated stricter social distancing rules on Saturday, clouding the outlook.

The finance ministry expected private consumption to grow 3.8% in 2022 and exports to jump 2.0% to a record $656.0 billion next year. Exports are seen surging 25.5% in 2021, having strongly bounced back from a pandemic-induced slump last year, propelled by post-lockdown recoveries in major markets, which pushed up demand for Korean chips and petrochemical products.

The spread of the Omicron variant, supply chain disruptions and growing household debt remain major risks for South Korea’s growth outlooks, the vice finance minister said.

Meanwhile, the government plans to spend 63% of its record 607.7 trillion won ($510.77 billion) annual budget in the first half of 2022, the ministry said, though it aims to gradually dial back pandemic-era financial support measures.

For example, the special purpose vehicle set up by the government and the central bank to purchase low-rated corporate bonds and commercial paper aimed at calming local debt market will stop operation by the end of 2021, the ministry said.

The ministry also said it will create at least 1.06 million new jobs for the vulnerable elderly, youth and people with disabilities in 2022.

Separately, the finance ministry said it will completely reorganise the foreign exchange transaction system to improve the access of foreign traders to its currency market as it aims for inclusion on the MSCI developed markets index. It did not provide any further details.