OECD Lowers South Korea's Economic Growth Rate to 1.5%... Raises Global Growth Rate

The Organisation for Economic Co-operation and Development (OECD) has revised South Korea's economic growth forecast for this year down by 0.1 percentage points from March to 1.5%. During the same period, the global economic growth rate was adjusted upward by 0.1 percentage points to 2.7%. The OECD analyzed that the global economy is gradually improving due to factors such as a slowdown in inflation driven by falling energy prices, a rebound in corporate and consumer sentiment, and China's reopening.

On the 7th, the OECD released its "Economic Outlook" report containing these details. It projected that South Korea's economy will grow by 1.5% this year. This forecast matches the one previously released by the Korea Development Institute (KDI) and is 0.1 percentage points higher than the 1.4% growth rate predicted by the Bank of Korea. In the report, the OECD stated about the Korean economy, "Private consumption is showing signs of recovery, but exports and private investment remain sluggish," and added, "High interest rates and a sluggish housing market pose short-term burdens on private consumption and investment, but an export rebound driven by China's economic recovery will offset these factors."

The OECD forecasted the global economic growth rate for this year at 2.7%, an increase of 0.1 percentage points from the March outlook. By region, the United States was revised up by 0.1 percentage points to 1.6%, China also rose by 0.1 percentage points to 5.4%, and Japan was lowered by 0.1 percentage points to 1.3%. Notably, the OECD maintained its projection that China's full reopening in March would boost growth by 0.7 percentage points.

In contrast, most Eurozone countries' economic forecasts remained around the 1% range. France (0.8%), Italy (1.2%), and the United Kingdom (0.3%) saw slight increases, while Germany's forecast was lowered by 0.3 percentage points, resulting in zero (0) economic growth this year.

[Image source=Yonhap News]

The OECD assessed that although the global economy is improving, the recovery remains fragile. Inflation rates are slowing due to falling energy prices, but household and corporate sentiment is rebounding, and China's reopening is expected to have a positive effect on the global economy. However, core inflation remains high, and the impact of high interest rates is affecting not only asset and financial markets but also, with a time lag, the real economy.

The average inflation rate forecast for the G20 (Group of Twenty) is 6.1% this year and 4.7% next year. South Korea's inflation rate is projected at 3.4% this year and 2.6% next year. The OECD explained in the report, "Global demand, centered on semiconductors, is slowing, and exports declined due to weak demand from China at the end of last year," adding, "Inflation fell to 3.7% in April, but core inflation remains at 4.0% due to rising prices in public and personal services."

The OECD recommended that South Korea enhance fiscal soundness in response to its rapid population aging and suggested more direct support measures for vulnerable groups related to the recently extended temporary reduction of fuel taxes. It also proposed strengthening training and active labor policies for the unemployed and expanding social safety nets to facilitate smooth labor reallocation. The OECD viewed that deregulation in product markets would help reduce the productivity gap between large corporations and small and medium-sized enterprises while contributing to resolving the dual structure of the labor market.

Meanwhile, the OECD releases its global economic outlook forecasts in May and November and provides interim updates in March and September.