IMF Lowers South Korea's Economic Growth Rate from 2.2% to -1.2%, Highest Decline Among OECD Countries

Next Year's Growth Rate Revised Upward to 3.4% from Previous 2.7%

[Sejong=Asia Economy Reporter Kim Hyunjung] The International Monetary Fund (IMF) on the 14th revised South Korea's economic growth rate for this year downward from the previous 2.2% to -1.2%, considering the impact of the novel coronavirus disease (COVID-19) pandemic. Although this is a negative growth rate, it is the highest level among the 36 member countries of the Organisation for Economic Co-operation and Development (OECD).

According to the Ministry of Economy and Finance, the IMF forecasted South Korea's growth rate for this year at -1.2%, 3.4 percentage points lower than the previous projection, in its World Economic Outlook released on the same day. The IMF had presented a 2.2% growth rate for South Korea in its January World Economic Outlook, which did not reflect the impact of COVID-19 at that time.

On this day, the IMF stated, "The global economy will experience the worst recession since the Great Depression of the 1930s," and predicted that the world economy would deteriorate more than during the global financial crisis. Accordingly, the global economic growth rate for this year is expected to contract by -3.0%. This is a 6.3 percentage point decrease from the January forecast.

Although the IMF significantly downgraded South Korea's economic growth rate, it remains the highest among OECD member countries. Also, the adjustment from the January forecast is the smallest among related countries. For advanced economies, the IMF revised the growth forecast to -6.1% (a 7.7 percentage point decrease from January 2020), and for emerging and developing economies, to -1.0% (a 5.4 percentage point decrease from January 2020). The United States' forecast was lowered from 2.0% to -5.9%, the Eurozone from 1.3% to -7.5%, and Japan from 0.7% to -5.2%.

Regarding this, Andreas Bauer, head of the IMF mission to South Korea, evaluated that "South Korea's comprehensive approach to suppressing COVID-19 and rapid economic response policies mitigated the negative impact on the domestic economy." However, he observed that "considering South Korea's high degree of openness, the sharp downward revision of growth forecasts in major trading partners and the resulting weak external demand will constrain growth prospects."

The Ministry of Economy and Finance explained, "As the global economy and major trading partners' growth forecasts have been significantly downgraded, a downward revision of South Korea's forecast, which has a high degree of openness, is inevitable." It added, "In response to the unprecedented changes in the global economic environment triggered by COVID-19, the government plans to mobilize nationwide capabilities to end COVID-19 early and restore economic recovery momentum."

The IMF also predicted a stronger rebound next year, given the sharp slowdown in growth this year. The global economic growth rate is expected to be -3% this year, down 6.3 percentage points from the previous 3.3%, but the forecast for next year was raised to 5.8%, 2.4 percentage points higher than the previous 3.4%. South Korea is also expected to record a growth rate of 3.4% next year, an improvement of 0.7 percentage points from the previous 2.7%, according to the IMF.

However, the IMF added a caveat that "the rebound in 2021 is highly uncertain and depends on whether the pandemic ends in the second half of this year and the effectiveness of policy support." It further warned, "There is also a possibility that the pandemic may last longer than expected or reoccur in 2021," and expressed concern that "the global economic growth rates for 2020 and 2021 could fall further below the baseline forecast."

Meanwhile, among OECD countries, Greece experienced the largest downward revision in economic growth rate, lowering it by 12.2 percentage points from the previous forecast of 2.2%. Latvia (-11.4 percentage points), Slovenia (-10.9 percentage points), Lithuania (-10.8 percentage points), Estonia (-10.4 percentage points), and Ireland (-10.3 percentage points) also saw reductions of more than 10 percentage points. Additionally, China and India were downgraded by 4.8 percentage points and 3.9 percentage points, respectively, to 1.2% and 1.9% from their previous forecasts.

This content was produced with the assistance of AI translation services.