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By Lee Kyung-min

Korea's leading manufactures are expected to face major setbacks in 2023 due to multiple challenges, including declining exports, an industrial downturn, weakened consumer sentiment and surging inventory levels, an industry ministry-affiliated research institute report showed Monday.

Compounding the woes of the export-reliant economy are unfavorable global economic and financial conditions, borne out mostly by the sustained depreciation of the Korean currency against the U.S dollar and rising inflation and tightening monetary policies in major economies.

The factors triggered by fears of a global economic slowdown will impact the export growth of almost all of the country's industries, except automobiles, shipbuilding, rechargeable batteries and biohealth.

4% drop

In its 2023 outlook report, Korea Institute for Industrial Economics and Trade (KIET) forecast the combined exports of Korea's 13 leading industries will reach $517.9 billion (700 trillion won) in 2023, down 4 percent from $539.7 billion this year.

The 13 are automobile, shipbuilding, general machinery, steel, refining, petrochemical, IT communications devices, household appliances, semiconductor, displays, secondary batteries and biohealth.

The projection compares to a 7.7 percent increase in 2022, compared to combined exports of $501.2 billion in 2021.

The institute expects the automobile and shipbuilding industries to be the only two Korean machinery industries registering growth next year, up 2.5 percent and 42.4 percent, respectively.

The growth of the material industry will, in contrast, dwindle 11.2 percent next year, led by declining unit prices and falling import demand.

IT industries will register a growth of 5 percent, due to stagnant demand and rising overseas production.

The report showed that shipbuilding and rechargeable batteries will be the only two manufacturing sectors expected to see strong local demand.

Demand for the automobile, general machinery, refiners, petrochemical, household appliance and display industries will see a sustained decline.

Growth will slow in the fiber, semiconductor, and biohealth industries.

The country' industrial production, the report said, will be underpinned in large part by shipbuilders, the sole winner in the post-pandemic global economy expected to register a 42.4 percent growth.

Its other peers except for steelmakers and refiners will remain sluggish due to a steep rise in inventory over the past few years. The two are expected to log a respective 1.6 percent and 1.1 percent growth.

Macroeconomic conditions

Global oil prices are expected to stabilize to the $90-level per barrel, prompted by hawkish steps expected from major countries amid a slowdown in the global economy, the report said.

The positive outlook for Korea which lacks energy resources, however, will be complicated by production cuts by major oil producers.

The Korean currency will depreciate due in large part to additional U.S. Fed policy rate hikes in the months to come and moderated global growth.

However, the downward trajectory could take an upward turn, if the Korea-U.S. interest rate spread narrows in the second half.

The Korean economy is likely to grow 1.9 percent next year, weaker than the mid-2-percent growth expected by government organizations and private research institutes this year.