IMF Maintains South Korea's Economic Growth Rate at 4.3% This Year...Global Economy Down 0.1%p

South Korea's Growth Rate for Next Year Revised Down from 3.4% to 3.3%

[Sejong=Asia Economy Reporter Kim Hyun-jung] The International Monetary Fund (IMF) has maintained South Korea's economic growth forecast for this year at 4.3%, the same as its previous projection. However, it slightly downgraded the growth forecast for next year to 3.3%.

On the 12th (local time), the IMF released its World Economic Outlook, predicting that South Korea's economic growth rate for this year will be 4.3%. This maintains the significant upward revision from the previous forecast of 3.6% made in July.

As reasons for this assessment, the IMF cited the expansion of vaccination rates, an increase in exports, and the effects of supplementary budget execution. The average growth rate for 2020-2021, excluding the base effect of negative growth caused by the COVID-19 shock, was 1.7%, significantly surpassing major G7 countries such as the United States (1.3%), Canada (0.2%), Germany (-0.7%), France (-0.9%), Japan (-1.2%), the United Kingdom (-1.5%), and Italy (-1.6%). The three-year average growth rate from 2020 to 2022 was 2.2%, ranking second after the United States (2.6%). The average for advanced countries was 1.7%.

This IMF forecast is higher than those of the South Korean government (4.2%), the Bank of Korea (4.0%), the OECD (4.0%), as well as the three major international credit rating agencies (Moody’s, S&P, Fitch), which all projected 4.0%.

However, the IMF forecast for South Korea’s growth rate next year was lowered by 0.1 percentage points from the previous 3.4% to 3.3%. This reflects consideration of various downside risks, including the spread of COVID-19 variants and domestic monetary policy.

The IMF revised its global economic growth forecast for this year down by 0.1 percentage points from 6.0% to 5.9%. The forecast for next year remains unchanged at 4.9%. By country, the United States is expected to grow at 6.0%, down 0.1 percentage points; Germany and Japan are projected to decline by 0.4 percentage points each to 3.2% and 2.4%, respectively. The United Kingdom’s forecast was lowered by 0.2 percentage points to 6.8%, while France and Italy are expected to improve by 0.5 and 0.9 percentage points to 6.3% and 5.8%, respectively.

For emerging and developing countries, despite China’s fiscal tightening and the spread of COVID-19 in ASEAN, a slight increase is expected due to rising exports of raw materials from Latin America, the Middle East, Central Asia, and Africa. China’s growth rate was revised down by 0.1 percentage points to 8.0%, Brazil’s to 5.2%, and Mexico’s to 6.2%, down 0.2 and 0.1 percentage points, respectively.

The IMF identified downside risks to the global economy including the spread of variant viruses, supply instability, inflation, early normalization of monetary policy, U.S. fiscal tightening, and intensifying U.S.-China trade and technology disputes. Upside factors include accelerated vaccine production and distribution, and productivity gains from structural transformation.

To respond to these changes, the IMF advised strengthening international cooperation such as vaccine supply and adjusting policies according to each country’s situation. Regarding international cooperation, key issues include vaccine supply to low-income countries, climate change response, liquidity support for vulnerable countries through SDR utilization, and the introduction of a global minimum corporate tax.

Specifically, the IMF emphasized that countries should prioritize health and employment promotion policies while ensuring fiscal soundness based on medium-term fiscal plans. It recommended cautious monetary tightening until inflation pressures become clear, but if recovery occurs faster than expected, rapid normalization and communication with markets are necessary. Regarding financial policies, the IMF urged focusing support on sound small and medium-sized enterprises and strengthening bankruptcy and rehabilitation support for marginal companies. It also clearly stated the need to secure external soundness, such as maturity extensions, in preparation for interest rate hikes in advanced countries.

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