IMF Releases World Economic Outlook
South Korea Growth Rate 2.0→1.7%
Global Growth Rate 2.7→2.9%
[Asia Economy Sejong=Reporter Lee Jun-hyung] The International Monetary Fund (IMF) has downgraded its growth forecast for the South Korean economy this year. On the other hand, it raised the global growth forecast. Inflation is also expected to remain high this year.
In the 'World Economic Outlook (WEO)' report released on the 31st, the IMF projected South Korea's growth rate at 1.7% for this year. This is 0.3 percentage points lower than the previous forecast of 2.0% released in October last year. It is similar to the growth forecast of 1.6% presented by the government last month in its economic policy direction. The IMF also lowered South Korea's growth forecast for next year from 2.7% to 2.6%, a 0.1 percentage point decrease.
It is unusual for the IMF to set South Korea's growth rate in the 1% range. In fact, 1.7% is the lowest growth forecast by the IMF for South Korea since 2009 (0.8%), when the financial crisis hit, excluding 2020 (-0.7%) when COVID-19 spread. This indicates a bleak outlook for the South Korean economy. Recently, Nomura Securities even projected South Korea's growth rate this year at -0.6%. Citibank Korea's forecast was also only 0.7%.
Unlike South Korea's growth rate, the global growth rate was revised upward. This is analyzed to reflect expectations due to China's reopening of economic activities. The IMF's forecast for global growth this year is 2.9%, 0.2 percentage points higher than the previous forecast of 2.7%. The IMF also raised the growth forecast for advanced economies from 1.1% to 1.2%, a 0.1 percentage point increase. The growth forecast for emerging and developing economies rose from 3.7% to 4.0%, a 0.3 percentage point increase.
Japan's growth forecast for this year was also raised by 0.2 percentage points to 1.8%. If the IMF's forecast holds true, South Korea's growth rate will be lower than Japan's for the first time since the Asian financial crisis.
However, the growth forecast for next year was lowered. The IMF's global growth forecast for next year is 3.1%, 0.1 percentage points lower than the 3.2% forecast released last October. Growth forecasts for advanced and emerging economies were also lowered by 0.2 and 0.1 percentage points, respectively. This reflects downside risks to the economy such as the Russia-Ukraine war and inflation caused by China's economic recovery.
The global consumer price inflation rate for this year was projected at 6.6%, up 0.1 percentage points from the previous forecast of 6.5%. The inflation forecast for next year was raised from 4.1% to 4.3%, a 0.2 percentage point increase. The IMF believes that the global consumer price index peaked in the third quarter of last year and is now on a downward trend. However, regarding the core price index, the IMF notes that it has not yet peaked due to high wage growth and a rigid labor market.
The IMF identified 'inflation response' as the top priority. Since the recent global economic downturn is inflation-driven, interest rates should be raised or maintained until core inflation declines. The IMF also recommended reducing broad fiscal support but gradually tightening fiscal policy to ease the burden on monetary policy. It advised strengthening targeted support for vulnerable groups in food and energy sectors. The IMF stated in the report, "It is necessary to strengthen international cooperation to address economic fragmentation and to restructure debt in low-income countries."
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