G2 Game Contraction... South Korea's Exports Face a 'Thorny Path'

Due to Omicron Spread, US and China Growth Forecasts Downgraded... Export Share '40%' Expected to Take Major Hit

[Asia Economy Sejong=Reporters Son Seon-hee and Lee Dong-woo] Major global economic institutions are simultaneously revising downward the economic growth forecasts for the two major countries (G2), the United States and China. After barely entering a recovery phase last year following the 'COVID tunnel,' the G2 economies are now sharply contracting due to a combination of adverse factors such as the spread of the Omicron variant, tightening concerns originating from the U.S., and China's slowing growth. The rapid economic slowdown in the G2 inevitably sends shockwaves to the export-driven Korean economy.

According to the Ministry of Economy and Finance on the 26th, the International Monetary Fund (IMF) released its 'World Economic Outlook' report the day before, projecting that the U.S. economic growth rate for this year will be only 4.0%. This marks a 1.2 percentage point drop in just three months. China's economic growth forecast was also lowered by 0.8 percentage points from the previous 5.6% to 4.8%. The global economic growth rate was revised downward by 0.6 percentage points from 4.9% to 4.4%. South Korea's forecast was adjusted from 3.3% to 3.0%.

The IMF publishes its main World Economic Outlook report every April and October, and issues 'WEO Updates' focusing on major countries in January and July. The figures announced this time correspond to the revised outlook reflecting recent economic conditions. The actual release date was delayed by more than a week, and multiple revisions were reportedly made until just before publication. This indicates that the IMF incorporated recent downside risks to the economy, including the spread of Omicron, as much as possible in its forecast revisions.

Among the growth forecasts for major countries, the largest decline was seen in the U.S. (-1.2 percentage points). The IMF explained the background by stating, "The downward revision reflects adjustments in U.S. fiscal policy, early normalization of monetary policy, and inflationary pressures due to supply chain disruptions and rising energy prices." China's growth rate also fell by 0.8 percentage points, signaling a slowdown in economic growth.

Earlier, on the 12th, the World Bank (WB) also released its economic outlook, lowering the U.S. growth forecast for this year to 3.7% (a 0.5 percentage point decrease from the June forecast last year) and China's to 5.1% (a 0.3 percentage point decrease). Amid these downward revisions by major institutions for the G2 economies, the Ministry of Economy and Finance offered an optimistic assessment, stating, "The Korean economy has been relatively slightly revised downward" and "After overcoming the crisis fastest last year, it will continue the fastest growth trend through next year."

However, concerns are growing because the U.S. and China, which have been hit hardest economically by the spread of Omicron, are Korea's major export markets. Last year, Korea's total annual exports reached a record high of $644.54 billion. Of this, exports to China accounted for $162.94 billion (25.3%) and to the U.S. $95.9 billion (14.9%), with the two countries together making up over 40% of Korea's exports. If Korea's growth engine, exports, falters, the government's 3.1% growth target will also be at risk.

Professor Jeong In-gyo of Inha University's Department of International Trade commented, "Since there are limits to economic stimulus through fiscal spending as seen last year, the new government is likely to revise the economic growth rate downward."

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