Government Formalizes '2% Growth Rate' for This Year

Ministry of Economy and Finance "Downward Revision of Forecasts Unavoidable"... Comprehensive Revision of Inflation Outlook After Presidential Election

[Asia Economy Sejong=Reporter Kwon Haeyoung] The government will completely revise its economic growth forecast for this year after the presidential election. It is expected to lower the previous 3.1% growth target, effectively formalizing growth in the 2% range. This decision comes as fears of stagflation?a combination of rising prices and economic stagnation?have surged due to the sharp increase in crude oil and raw material prices following Russia's invasion of Ukraine, making it difficult to achieve this year's target.

A Ministry of Economy and Finance official stated on the 8th, "The situation has completely changed since we established the economic outlook at the end of last year due to the Ukraine crisis, making a downward revision of the growth forecast inevitable," adding, "We plan to fully revise the existing growth and inflation forecasts while formulating the new government's economic policy direction after the presidential election."

In the economic policy direction announced in December last year, the Ministry projected a real Gross Domestic Product (GDP) growth rate of 3.1% and a consumer price inflation rate of 2.2% for this year. These forecasts were based on assumptions including a 4.9% annual growth of the global economy (according to the International Monetary Fund's October forecast last year) and crude oil priced at $73 per barrel based on Dubai crude.

However, these assumptions collapsed in just over two months. In January, the IMF forecasted global economic growth at 4.4% and South Korea's economic growth at 3.0%, lowering the previous projections by 0.5 and 0.3 percentage points respectively. These figures accounted for the spread of Omicron but did not consider the Ukraine crisis. To make matters worse, with the Russia-Ukraine war becoming a reality, international oil prices surged past $130 per barrel during trading?the highest in 13 years?and the won-dollar exchange rate rose due to a preference for safe-haven assets.

As the government's economic outlook diverges significantly from reality, turning into 'rose-colored expectations,' a downward revision of this year's growth forecast to the 2% range is being accepted as a foregone conclusion. A significant upward revision of the inflation forecast is also inevitable. Although the Ministry of Economy and Finance initially aimed to keep this year's inflation rate in the low 2% range, there is now talk of it possibly exceeding 4% this month.

Professor Yang Junmo of Yonsei University's Department of Economics pointed out, "Currently, the economy is not in a structure where good economic conditions increase employment and wages, leading to rising prices; instead, prices are soaring alone, reducing workers' real wages," adding, "The government must calmly recognize the current situation where stagflation concerns are emerging and devote all efforts to price management to prevent inflation from becoming malignant."

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