OECD Projects South Korea's Consumer Price Inflation at 5.2% This Year, Up 0.4%P from Previous Estimate

'OECD Interim Economic Outlook' Announcement

[Asia Economy Sejong=Reporter Kim Hyewon] The Organisation for Economic Co-operation and Development (OECD) has raised South Korea's economic growth forecast for this year by 0.1 percentage points from the previous (June) forecast to 2.8%. The growth forecast for next year was lowered by 0.3 percentage points to 2.2%. The consumer price inflation forecast for South Korea this year was raised by 0.4 percentage points to 5.2%, and for next year by 0.1 percentage points to 3.9%.

On the 26th, the OECD released the 'OECD Interim Economic Outlook' containing these details. The OECD publishes economic outlooks twice a year (May-June, November-December) and interim economic outlooks twice a year (March, September).

In revising South Korea's economic growth and consumer price inflation forecasts, the OECD stated, "Along with Japan and Australia, South Korea is maintaining growth momentum compared to Europe and the United States, but this momentum is expected to weaken due to a slowdown in external demand."

The global economic growth rate is projected at 3.0% this year and 2.2% next year, maintaining the June forecast for this year but lowering next year's forecast by 0.6 percentage points.

In particular, the United States, which accelerated monetary tightening (-1.0 percentage points), China, which locked down major cities (-1.2 percentage points), and Germany, which heavily depends on Russian natural gas (-0.7 percentage points), have significantly lowered their economic growth forecasts for this year.

The OECD commented on the global economy, "Economic growth has stagnated due to rising energy and food prices caused by the prolonged war, and recovery will be delayed for a considerable period next year due to continued monetary tightening by major countries amid persistent inflation. Growth rates in European countries facing an energy crisis are expected to decline significantly."

The average inflation rate among the Group of Twenty (G20) countries was adjusted to 8.2% this year and 6.6% next year, up 0.6 percentage points and 0.3 percentage points respectively from the June forecast.

This reflects the assessment that rising energy prices due to the Russia-Ukraine conflict have broadly translated into increased prices and wages.

The OECD predicted, "The United States, which started monetary tightening earlier than other advanced countries, is expected to make rapid progress in bringing inflation back to target levels, whereas the Eurozone and the United Kingdom, which started monetary tightening later, will see inflation remain at high levels for some time."

While many G20 countries are expected to see inflation peak in the third quarter of this year and gradually ease from the fourth quarter, high inflation is projected to continue into next year.

However, the OECD's economic growth and consumer price forecasts are based on the assumptions that the COVID-19 pandemic and the Russia-Ukraine war will not worsen further, and that the European energy crisis will gradually ease.

The OECD left open the possibility that if Europe's energy crisis worsens beyond expectations due to disruptions in securing supply sources other than Russia or a harsh winter, economic growth and inflation forecasts could deteriorate further.

For future policy directions, the OECD recommended monetary tightening, temporary fiscal policies targeting vulnerable groups, climate change response, and joint action on food security. It also advised close monitoring to mitigate inflationary pressures through additional monetary tightening while preventing risks of excessively high interest rate hikes or prolonged tightening beyond necessity.