In the January 19th session I argued that 2023 might not be such a bad year for Korea. Just Q4 2022 and Q1 2023 would be bad. January 26th we learnt that my forecast for YoY GDP was about right 1.6% as against forecast of 1.7%, but QonQ was off with a negative -0.4%. I expect later data to show that it was not quite so bad and will discuss the problems of QonQ calculations. But if the economy improves from Q2, I expect oil prices to rise when the traders decide that China is on the mend, so the CPI may not look so promising. We discussed the surprising recovery of the won and the failure of the yen to recover meaning that the won trades as a premium to the yen of about 5.4%.
I began by saying that most relationships in the Korean economy were likely to change. I pointed to the period of growth 2015-2017 when growth was above 2% but the input from export growth was close to zero, as it might be in early 2023. But that growth in 2015-17 was the result of the lax credit rules on property that allowed many Koreans to buy a house. Unfortunately due to past policies, new policies and especially high interest rates the housing market is likely to be largely frozen.
The last time we had a global recession unrelated to oil shocks was 1991 which was a response to the Iraqi invasion of Kuwait. According to the World Bank, the world economy has experienced four global recessions over the past seven decades: in 1975, 1982, 1991, and 2009. The first two were caused by oil shocks, the next by a war shock and the last by the collapse of aspects of the financial system.
So there are no precise guidelines on how the Korean economy will be affected in 2023 nor how the domestic economy will perform.
Recession 2023 is a reduction in world demand in the world’s primary economic centres, the EU and US and in about 42 other countries where central banks have raised interest rates. The third primary economic centre China is more problematic. China has not raised interest rates and neither has Japan. But China is in trouble suddenly emerging from Covid and when it does recover, we may get a rerun of surges of demand and problems with logistics.
Our session will look at the prospects for Korea under a variety of scenarios including; new shocks, no recovery, partial recovery and early China recovery. We face other complications in that the President wishes to spend less money that his predecessor, and to reform labour, pensions and education while boosting the real estate market, against an opposition controlled National Assembly – this adds an additional dimension to each scenario.
Our current core projection is 1.7% for the year with the second half stronger than the first.
If you missed the main session, join us for the second chance online to discuss all these possibilities. The provisional programme for the year is on line at Provisional Korea Business Forum Programme 2023 – KABC Ltd. As usual we shall be asking members’ opinion and suggestions and this will result in appropriate modifications. If you would like to meet to discuss the forecast and prospects for the year over coffee or breakfast please let me know.
Tony Michell Ph.D
Managing Director, KABC Ltd.