AMRO "Korean Economy 1.7% Growth, Inflation Up 3.3%"

ASEAN+3 Macroeconomic Research Office
2022 Korea Annual Consultation Report Released

The ASEAN+3 Macroeconomic Research Office (AMRO) forecasted on the 4th that South Korea's economy will grow by 1.7% this year, with inflation rising by 3.3%.

On the same day, AMRO announced this through its 2022 South Korea Annual Consultation Report.

AMRO is an international organization established in Singapore in 2011 that analyzes and monitors the economic trends of ASEAN+3 and supports the economic and financial stability of its member countries.

The report released this time was based on the annual consultation conducted by a mission team of seven members, including AMRO Director Kevin Chang, who visited South Korea from November 28 to December 9, 2022, and held meetings with government ministries such as the Ministry of Economy and Finance and the Bank of Korea, as well as related agencies.

AMRO projected that South Korea's economy in 2023 will grow by 1.7%, a decrease of 0.9 percentage points from 2.6% in 2022, due to a slowdown in private consumption and exports, and weak facility investment.

Inflation is expected to ease to 3.3%, down 1.8 percentage points from 5.1% in 2022, due to declines in energy and food prices.

In the short term, AMRO sees significant downside risks to the economy, including a resurgence in international commodity prices, expanded supply chain disruptions, more aggressive interest rate hikes by the U.S. Federal Reserve, sharp economic slowdowns in advanced countries, and a slower-than-expected recovery in China's economy. In the medium to long term, household and corporate debt and aging are identified as risk factors for the South Korean economy.

AMRO recommended that the government control inflation and support economic growth by ▲ enhancing fiscal soundness ▲ operating flexible monetary policy ▲ maintaining financial stability ▲ and boosting growth potential.

First, AMRO pointed out that fiscal soundness should be secured through the introduction of effective and credible fiscal rules, while continuing selective support for vulnerable sectors and groups affected by high inflation and strengthening social safety nets.

It expects inflation to continuously exceed the target and evaluated the current tight monetary policy stance of the Bank of Korea as appropriate. However, considering downside risks to the economy and the impact on financial stability, it mentioned that the Bank of Korea should be prepared to adjust monetary policy to stimulate the economy.

For banks, it recommended maintaining capital and liquidity buffers at high levels as currently, and for non-bank financial institutions, which are more vulnerable compared to banks, it advised expanding financial buffers.

Additionally, AMRO recommended continuing to promote economic structural reforms and strengthen growth potential through digital transformation and carbon neutrality implementation.