IMF Projects South Korea's Growth Rate at 3.6% This Year, Up 0.5%P in Two Months

[Image source=Reuters Yonhap News]

[Sejong=Asia Economy Reporter Son Seon-hee] The International Monetary Fund (IMF) projected South Korea's economic growth rate for this year at 3.6% on the 26th (Korean time). This is a 0.5 percentage point upward revision in just two months from the January forecast of 3.1%.

In the Korea Annual Consultation Report released on the same day, the IMF evaluated that "since the second quarter of last year, South Korea's economic activity has returned to a recovery trend, supported by a rebound in exports, especially in the high-tech industry sector, and resilient investment in machinery and equipment," adding that "real gross domestic product (GDP) growth is forecasted at 3.6% due to the gradual normalization of COVID-19 related factors and increased external demand."

Initially, when the report was drafted, the GDP growth rate was expected to be 3.4%, but it was revised upward to 3.6% reflecting the recently announced supplementary budget. Inflation this year is expected to record 1.2%.

The IMF analyzed that "South Korea's financial market is rapidly normalizing," and "indicators of financial sector soundness have so far shown relatively little impact from COVID-19." It also added, "Despite recent rises in food prices and oil prices, inflation remains below 1%."

However, it noted that "COVID-19 related risks remain open in both directions, so uncertainty about future prospects remains high," analyzing that "domestic and international COVID-19 resurgence and slowing vaccination rates are major downside risks to the economy, while faster-than-expected COVID-19 containment and sustained resilient external demand are major upside risks."

The IMF issued policy recommendations stating that for South Korea to continue its current recovery trend, sustained macroeconomic support policies, maintenance of financial stability, and promotion of inclusive growth are necessary. Expressing agreement with the 'short-term expansionary fiscal policy' such as the supplementary budget recently passed by the National Assembly, it forecasted that "the fiscal impulse will be positive (+) this year, but gradual fiscal consolidation over the coming years will offset this." It emphasized the need for fiscal rules by stating, "If an independent committee monitors and reviews compliance with fiscal rules, trust in fiscal rules will increase."

It also recommended accommodative monetary policy and continuous corporate liquidity support for economic recovery. However, it pointed out that "if the household debt growth trend continues, it will be necessary to strengthen regulations."

The Ministry of Economy and Finance commented on the IMF report, saying, "The IMF's growth forecast is higher than those of major institutions such as the Organization for Economic Cooperation and Development (OECD), the Bank of Korea, and the government," and evaluated that "this means our economy is among the leading group of countries recovering strongest and fastest from the COVID-19 crisis." It added, "The IMF's policy recommendations align with the economic policy directions presented this year," and stated, "We plan to maintain and expand the economic recovery trend through the prompt execution of supplementary budgets such as the 4th disaster relief fund, while accelerating the Korean New Deal to secure new growth engines and enhance inclusiveness."

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