IMF Lowers South Korea Growth Outlook for 4th Consecutive Time, Citing Weak Semiconductor Market

The International Monetary Fund (IMF), which has lowered South Korea's growth forecast for the fourth consecutive time, cited the semiconductor industry downturn and domestic demand slowdown as the reasons behind this.

[Image source=Reuters Yonhap News]

Krishna Srinivasan, Director of the IMF Asia and Pacific Department, attended the regional press conference at the IMF-World Bank Spring Meetings held in Washington DC on the 13th (local time) and stated that one of the reasons for lowering South Korea's economic growth forecast this year was "naturally, the weaker-than-expected global semiconductor cycle." He diagnosed that this semiconductor downturn is affecting both South Korea's exports and investments.

Director Srinivasan mentioned the slowdown in consumption after the COVID-19 pandemic, tightening policies, and real estate market adjustments, saying, "All of these have affected (South Korea's) consumption," and assessed that "domestic demand is weakening."

Through the World Economic Outlook (WEO) released on the 11th, the IMF lowered South Korea's growth forecast for this year to 1.5%, down 0.2 percentage points from the previous forecast. This marks the fourth consecutive downward revision from 2.9% last year to 2.1% (July last year), 2.0% (October last year), 1.7% (January this year), and now 1.5%. Notably, this four-time consecutive downgrade contrasts with the IMF's slight upward revision of the average growth rate for advanced economies, including the United States, to 1.3%. Among advanced economies, South Korea, Japan, and Germany, which have relatively high export ratios, saw their growth forecasts decline. When the IMF lowered South Korea's growth forecast in January, it also cited export sluggishness centered on semiconductors as the reason.

Amid concerns surrounding exports and domestic demand, the accumulated high-intensity tightening and the aftermath of the Silicon Valley Bank (SVB) crisis are also cited as future economic risk factors. On this day, when asked whether banking issues in the U.S. and Europe would affect South Korea, Director Srinivasan responded that the impact would be "limited." He assessed that Asian banks, including those in South Korea, have sufficient capital and profitability. However, he warned of related risks by mentioning that both corporate and household debt have increased. Following the SVB crisis, if global financial regulations tighten and lending standards rise, liquidity flows for households and companies will inevitably slow down. Concerns also exist about reduced investment due to worsening foreign currency financing conditions for Korean companies and delayed export recovery due to global demand slowdown.

The reopening effect of China, which was expected to provide a rebound opportunity for the South Korean economy, remains limited so far. However, Director Srinivasan expressed hope that as China's reopening effect gains momentum, it will have a positive impact on South Korea and neighboring trading countries. He said, "Countries that trade heavily with China will benefit," estimating that the rebound in China's consumption could increase the economic growth rates of other countries by an average of 0.6 percentage points. China's economy is projected to grow by 5.2% this year, supported by reopening. The overall growth rate for the Asia-Pacific region is also estimated at 4.6%.

Meanwhile, IMF Managing Director Kristalina Georgieva, attending the Spring Meetings on the same day, warned that "we are not in a recession," but emphasized that vigilance against new risks is most important. She pointed out, "Central banks need to address financial stability risks," and stressed that "monitoring risks that may be hidden in shadow banking sectors such as banks, non-bank financial institutions, and commercial real estate is key." Earlier, the IMF lowered the global economic growth forecast for this year by 0.1 percentage points to 2.8%.

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