South Korea’s state-run think tank Korea Development Institute (KDI) forecast that Korea’s economic growth would slow down at 2.9 percent next year from this year’s 3.1 percent, citing the country’s heavy reliance on the cyclical semiconductor industry for the growth.

The KDI said on Wednesday that it upped the Korea’s economic growth outlook for this year to 3.1 percent from earlier estimate of 2.6 percent in April and to 2.9 percent from 2.5 percent for 2018. Despite its latest upgrades, the think tank remains conservative compared to foreign economic organizations. The International Monetary Fund (IMF) projected 3.2 percent and 3.0 percent growth for Korea in 2017 and 2018, respectively, while the Organization for Economic Cooperation and Development (OECD) predicted a 3.0 percent growth for next year.

The KDI forecast the country’s recovery pace for next year would be slower than this year’s because the boom in semiconductor exports, which has mainly led the country’s economic growth this year without job growth, would end any time and overall investment is slowing.

The country is exposed to possible deterioration in trade conditions, such as a sudden fall in memory chip prices, a factor that is making it hard to guarantee the sustainability of the current growth rate, according to a KDI official.

To counter the possible slowdown in the growth, the think tank recommended Korea maintain its expansionary fiscal policy and accommodative monetary policy. It also advised the country to speed up structural reforms in both economic system and industries for the sustainable growth.

The KDI forecast Korea’s total exports would grow to 3.8 percent next year from 2.4 percent this year whereas predicting imports to retreat 3.7 percent next year from 7.2 percent this year.

By Sohn Il-seon and Cho Jeehyun

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