The Bank of Korea "Growth Rate 1.6% and Inflation Rate 3.5% This Year" ... Each Lowered by 0.1%P (Update)

[Asia Economy Reporter Seo So-jung] The Bank of Korea has lowered its forecast for this year's real Gross Domestic Product (GDP) growth rate by 0.1 percentage points to 1.6%. The consumer price inflation forecast was also reduced by 0.1 percentage points from 3.6% to 3.5%.

In the revised economic outlook announced on the 23rd, the Bank of Korea slightly lowered its economic growth forecast for this year from 1.7% to 1.6%. This is 0.1 percentage points lower than the forecast made last November and matches the government's forecast (1.6%). Consumer prices are expected to rise by 3.6% this year.

The Bank of Korea's growth forecast for this year is lower than most institutions such as credit rating agency Fitch (1.9%), the Organisation for Economic Co-operation and Development (OECD, 1.8%), Korea Development Institute (KDI, 1.8%), and the International Monetary Fund (IMF, 1.7%), but higher than the Korea Economic Research Institute (1.5%). The Bank of Korea's growth forecast is below the potential growth rate of the Korean economy, which is estimated to be in the 2% range.

The Monetary Policy Committee of the Bank of Korea had previously indicated in last month's monetary policy direction meeting minutes that this year's growth rate would fall short of the November forecast (1.7%). A growth rate in the 1% range is the lowest since the 2000s, except for the negative growth during the COVID-19 pandemic in 2020 (-0.7%) and the global financial crisis in 2009 (0.8%).

In the monetary policy direction minutes released that day, the Bank of Korea stated, "Going forward, the domestic economy will continue to experience sluggish growth due to the global economic slowdown and rising interest rates. Although domestic growth is expected to gradually improve in the second half of the year with the recovery of China and the IT sector, the outlook remains highly uncertain."

On the same day, the Bank of Korea also lowered its consumer price inflation forecast for this year from 3.6% to 3.5%. The Bank of Korea predicted, "Consumer price inflation will be around 5% in February, then gradually slow down due to the base effect from last year's sharp rise in international oil prices and weakening demand pressures. However, due to the impact of public utility fee increases, the slowdown will be more gradual compared to major advanced countries."

An inflation rate in the 3% range is the highest level since 2008 (4.7%), when the global financial crisis began, except for last year's (5.1%) inflation.