'The Fear of Stagflation'... IMF Forecasts Downgrade of Economic Growth Outlook (Comprehensive)

Inflation and Vaccine Distribution Gaps Cause
Domestic Inflation Rate Stays in 2% Range for 6 Consecutive Months
KOSPI Falls Over 1%, Hits Yearly Low
Won-Dollar Exchange Rate Surpasses 1190 Won Intraday

Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF)
[Photo by AP Yonhap News]

[Asia Economy Reporters Byunghee Park and Sunhee Son] Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), has signaled that the global economic growth forecast for this year will be revised downward. She pointed to disparities in vaccination rates between countries, debt, and soaring inflation as the main causes. Concerns about stagflation, where inflation and growth slowdown occur simultaneously, are expected to deepen. With overlapping negative factors from abroad, the domestic stock market has not escaped a sharp decline. The won-dollar exchange rate surpassed 1190 during trading hours.

In a virtual speech held on the 5th (local time) at Bocconi University in Italy, Managing Director Georgieva said that the global economic growth forecast would be slightly lowered next week. Considering that the IMF's forecast presented in July was 6%, this means that the global economic growth rate this year is expected to be in the 5% range. The World Bank (WB) and IMF annual meetings are scheduled for next week.

Georgieva cited inflation, debt, and disparities in vaccination rates between advanced and low-income countries as factors slowing the pace of economic recovery. Regarding inflation, she said, "While many countries are expected to see inflationary pressures ease next year, inflation will still impact emerging and developing countries," adding, "Persistent inflation expectations cause interest rate hikes and financial market tightening." She also emphasized, "Central banks can avoid tightening for now, but they must be prepared to respond quickly if prices rise faster than expected and threaten economic recovery."

Domestic prices have also exceeded the targets set by the government and the Bank of Korea for six consecutive months. According to the consumer price trends announced by Statistics Korea on the same day, the consumer price index last month was 108.83 (2015=100 basis), up 2.5% compared to the same month last year. The year-to-date increase was 2.0%, already reaching the government's annual inflation management target of 2.0%. Considering that only three months remain this year, the inflation rate is likely to exceed 2% on an annual basis. This would be the first time in nine years since 2012 (2.2%).

In particular, factors that could push prices higher remain in the fourth quarter, including a rebound in consumer sentiment due to economic recovery, rising international oil prices, and electricity rate hikes. Eounseon Uh, Director of Economic Trend Statistics at Statistics Korea, said, "With rising factors such as personal and public services prevailing, the upward trend is expected to continue."

On the 6th, the KOSPI, which had recovered to the 3000 level thanks to a rebound in the U.S. market, reversed to a decline due to foreign selling and widened its losses. Around 10:53 a.m., it fell more than 1% to 2928, hitting a year-to-date low. The KOSDAQ dropped more than 2%, falling to the 935 level.

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