IMF Projects South Korea's Growth Rate at -1.9% This Year... 2.9% Next Year

Global Economic Growth Forecast Revised from -5.2% to -4.4%
IMF: "Strong Recovery in Q3 but Weakening Momentum in Q4"

[Asia Economy Reporter Jang Sehee] The International Monetary Fund (IMF) has revised South Korea's economic growth forecast for this year upward from -2.1% to -1.9%.

This adjustment is due to the recovery in export demand following the resumption of economic activities in major trading partners and the government's proactive policy responses, including the 4th supplementary budget.

However, the IMF projected next year's economic growth rate to be 2.9%, which is 0.1 percentage points lower than the initial forecast of 3.0%.

In the 'October IMF World Economic Outlook' released on the 13th (local time), the IMF raised South Korea's growth forecast for this year to -1.9%, up 0.2 percentage points from the June forecast of -2.1%.

The IMF also raised the global economic growth forecast from -5.2% to -4.4%, an increase of 0.8 percentage points. However, it noted that employment and inflation remain sluggish due to the ongoing pandemic and stagnation in the resumption of economic activities. While a strong recovery was observed in the third quarter, the recovery momentum is expected to weaken in the fourth quarter.

According to the IMF's growth forecasts for major countries this year, the figures are: United States (-4.3%), Japan (-5.3%), Germany (-6.0%), France (-9.8%), China (1.9%), and India (-10.3%).

Although the IMF slightly raised South Korea's growth rate for this year, it remains more pessimistic than the Organisation for Economic Co-operation and Development (OECD), which forecasted -1.0%.

The IMF explained, "Despite social distancing measures and stagnation in economic activity resumption in the second half of the year, the improvement in gross domestic product (GDP) performance in the second quarter is expected to solidify further in the third quarter."

The IMF expects South Korea's growth rate next year to be 2.9%. However, due to the base effect from this year's upward revision, the forecast for next year's economic growth rate was lowered by 0.2 percentage points from the June forecast of 5.4% to 5.2%.

The IMF assessed that both upside and downside risks remain. Upside risks include rapid economic normalization and additional fiscal expansion, while downside risks include the resurgence of COVID-19, premature withdrawal of policy support, corporate liquidity shortages and bankruptcies, and intensified US-China trade conflicts.

Meanwhile, in its economic outlook report, the IMF recommended temporarily suspending the application of fiscal rules where they exist and implementing tightening policies later. The IMF emphasized, "If the crisis persists, necessary policy support should be fully provided while securing fiscal capacity to prepare for future increases in fiscal spending." It also recommended raising progressive tax rates on the wealthy and international cooperation on digital taxes.

Furthermore, the IMF stated, "As economic activities resume, selective support should be gradually reduced and investment in the public sector should be increased," and added, "Managing national debt through reducing tax cuts and multilateral cooperation for economic recovery are necessary."

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