IMF Lowers South Korea Growth Outlook: "Delayed Semiconductor Recovery, China's Economic Slowdown Cited"

Sound Fiscal Policy "More Important Than Ever"

Krishna Srinivasan, Director of the Asia-Pacific Department at the International Monetary Fund (IMF), held a press conference on the 13th (local time) in Marrakech, Morocco, and answered questions. Photo by Marrakech Joint Press Corps

Krishna Srinivasan, Director of the Asia and Pacific Department at the International Monetary Fund (IMF), cited the delayed recovery in semiconductor demand and the slowdown in China's economic growth as factors for lowering South Korea's growth forecast for next year. He advised that to prepare for a low-growth shock, debt should be gradually reduced under a firm sound fiscal policy.

At a press briefing held on the 13th (local time) in Marrakech, Morocco, Srinivasan explained the reason for the downward revision of South Korea's economic growth rate for next year, saying, "The technology cycle transition has not yet occurred," and added, "There are signs, but it is taking longer than expected."

On the 10th, the IMF released its World Economic Outlook report, forecasting South Korea's growth at 2.2% in 2024, down 0.2 percentage points from the previous forecast of 2.4%.

The "technology cycle transition" mentioned by Director Srinivasan as a reason for the downward revision is interpreted as a slow recovery in demand for advanced industries such as semiconductors. Semiconductor demand surged explosively during the COVID-19 period but has since significantly declined due to inflation and economic recession. Earlier this year, many expected the semiconductor market to recover in the second half, but recently, opinions have emerged that the bottom may only be reached in the first quarter of next year.

Although Srinivasan had previously analyzed that the technology cycle would enter an upward phase in the second half of this year, he now supports the view that it is slower than expected. He forecasted, "The technology cycle is expected to transition in 2024, and the growth rate is also expected to rise again."

He continued, "The second reason is the slowdown in China's economic growth," adding, "South Korea has a particularly close relationship with China in trade, so it will have a significant impact on economic growth." The IMF's forecast for China's economic growth rate is 5% this year and 4.2% next year, each revised down by 0.2 and 0.3 percentage points, respectively. This explains how concerns about China's economic downturn have negatively affected South Korea's growth outlook.

Srinivasan also mentioned that policies aimed at lowering inflation rates influenced the downward revision of the growth forecast. However, he evaluated the Bank of Korea's tight monetary policy as "appropriate." He stated, "Inflation has not yet returned to the target level," and added, "My recommendation is to continue maintaining a tight stance in monetary policy going forward."

Regarding South Korea's sound fiscal policy, he said, "It is more important than ever." Srinivasan noted, "South Korea's shrinking deficit is very encouraging," and advised, "It is important not only to maintain sound fiscal policy to manage debt but also to secure fiscal buffers and keep debt at a low level." He repeatedly emphasized, "This is the time to prepare buffers to cope with potential shocks in the future."

Regarding household debt, he advised that although South Korea's level is high, it should be gradually reduced. Srinivasan said, "Household debt is currently quite high relative to disposable income," and added, "I think this indicator should be somewhat lowered." He continued, "Although debt is high, financial assets and income are solid, and the proportion of risks related to real estate loans is small," suggesting, "Systemic risk is low, so deleveraging should be implemented slowly."

Furthermore, Srinivasan analyzed, "Maintaining public debt at around 60% is South Korea's policy, and it should be continuously monitored," adding, "Since high interest rates are expected to persist, managing debt even better is important." Regarding South Korea's fiscal rules, he said, "They are very well-designed rules and provide a good framework for medium-term fiscal management."

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