Korean economy to grow just 0.8% amid construction slump: KDI

Workers labor at an apartment construction site in Seoul on Aug. 11. [YONHAP]

 
Korea’s economy is set to crawl forward at just 0.8 percent this year, the Korea Development Institute (KDI) warned Tuesday, as a construction slump deepens despite hopes for a rebound in spending since the new government took office.
 
In its revised economic outlook released on Tuesday, the think tank said, “Construction investment in the first half fell short of expectations, and the recovery will be slow due to delays in normalizing real estate project financing,” cutting its forecast for construction investment growth to minus 8.1 percent, down 3.9 percentage points from the previous estimate.
 
 
“The projection was sharply lowered to reflect cases where construction was halted due to safety accidents,” said Jung Kyu-chul, head of KDI’s economic outlook office.
 
KDI raised its forecast for export growth this year to 2.1 percent, up 1.8 percentage points from its first half projection, reflecting a “pre-emptive export” effect as companies shipped goods ahead of global tariff hikes amid a boom in the semiconductor market.
 
Facility investment is expected to grow 1.8 percent and private consumption 1.3 percent, supported by consumption-boosting measures and interest rate cuts.  
 
Consumer prices are projected to rise 2.0 percent this year, 0.3 percentage points higher than this year’s first-half forecast but lower than last year’s 2.3 percent.
 
The current account surplus is expected to reach $106 billion, boosted by the semiconductor upturn and improved terms of trade. The number of employed people is projected to increase by 150,000 this year, reflecting expanded government hiring and stronger private consumption.
 
For next year, KDI forecasts 1.6 percent growth. While export growth is expected to slow, a rebound in construction investment of 2.6 percent and private consumption of 1.5 percent will help support the economy.
 
KDI cited U.S. tariffs on semiconductor products and delays in normalizing real estate project financing as major downside risks. Although details of the semiconductor tariffs were not reflected in this outlook, the institute warned that tariff hikes by major trading partners could negatively affect the Korean economy. It also noted that the project financing issue could worsen the financial health of construction companies, delaying a recovery in construction investment.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom staff.
BY JEONG JAE-HONG [[email protected]]