This Year's Consumer Price Inflation Forecasted at 4.2%... Next Year's Growth Rate Projected at 2.3%
[Asia Economy Sejong=Reporter Kwon Haeyoung] Amid the global economic shock caused by the Ukraine crisis, the Korea Development Institute (KDI), a government-funded research institute, has lowered its economic growth forecast for South Korea this year from the previous 3.0% to 2.8%. Despite investment contraction, it is expected that growth in the high to mid-2% range will be achieved due to a rebound in private consumption. The consumer price inflation rate is projected to reach 4.2% this year.
On the 18th, KDI forecasted South Korea's economic growth rate for this year at 2.8% in its "2022 First Half Economic Outlook." This is a 0.2 percentage point downward revision from the 3.0% forecast made in the second half economic outlook last November.
The government’s current economic growth forecast for this year stands at 3.1%. With the economic outlook darkening due to the Ukraine war, it is expected that the new government’s economic policy direction to be announced soon will lower the growth forecast to the 2% range.
This KDI forecast is relatively high compared to other institutions’ estimates. Last month, the International Monetary Fund (IMF) revised South Korea’s economic growth forecast for this year downward to 2.5%, reflecting the impact of the Ukraine war.
KDI also diagnosed that external conditions surrounding South Korea are deteriorating. These include ongoing supply shocks caused by the Ukraine crisis, accelerated U.S. interest rate hikes, and the possibility of a slowdown in China’s economy. Nevertheless, it expects the economic recovery to continue, led by exports improvement followed by private consumption.
KDI analyzed, "Despite domestic demand slowdown caused by the spread of COVID-19 and global supply chain disruptions, our economy continues a moderate recovery driven by export improvements," and "It is judged that a moderate economic recovery centered on private consumption will continue."
However, it forecasted that economic growth will decline to 2.3% next year as export growth slows. This is due to potential constraints on export-driven economic growth caused by raw material supply instability, prolonged global supply chain disruptions, and a sharp downturn in China’s economy.
Consumer prices this year are expected to rise by 4.2% due to economic recovery and a sharp increase in international oil prices. The core inflation rate, which excludes agricultural products and petroleum products affected by supply and demand, is projected at 3.1%, reflecting the underlying price trend. Price stability is expected to return only by next year.
KDI stated, "Consumer prices will record a high increase of 4.2% in 2022 as supply-side inflationary factors persist and private consumption gradually recovers," and "In 2023, as international oil prices stabilize and supply-side factors gradually diminish, inflation is expected to rise by 2.2%."
Furthermore, KDI emphasized, "Considering that economic recovery is underway, macroeconomic policies need to gradually normalize accommodative policies while managing high inflation and rapidly increasing debt."
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