IMF cuts Korea’s growth prediction to 2.3%

SEJONG -- The International Monetary Fund on Tuesday forecasted that the growth of the South Korean economy would stay under 2.5 percent in 2022 and 2023, respectively, in the wake of global inflationary pressure, China’s economic slowdown and the war between Ukraine and Russia.

In its latest world economic outlook report, the IMF revised down its prediction on the 2022 gross domestic product growth for South Korea by 0.2 percentage point from its earlier suggestion of 2.5 percent to 2.3 percent.

Further, the US-based organization drastically revised its forecast on the 2023 growth of South Korea down to 2.1 percent, from its earlier estimate of 2.9 percent.

For the 2022 growth outlook, the IMF’s projected figure of 2.3 percent is lower than the prediction of 2.7 percent by both the Organization for Economic Cooperation Development in June and the Bank of Korea in May.

This is also lower than the 2.6 percent suggested by South Korea’s Finance Ministry and S&P Global Ratings, separately in June, 2.5 percent by Moody’s Investors Service in May and 2.4 percent by Fitch Ratings in June.

While the IMF has not publicized details on the South Korean economy, it highlighted major downside risks surrounding the global economy -- ongoing high global inflation, negative fallout from policies against high consumer prices, and the prolonged Ukraine-Russia war.

It also picked China’s lockdown of major cities amid the pandemic and some European nations’ suspension of imports of Russian natural gas as unfavorable factors for the global economy.

Nevertheless, the IMF suggested that countries suffering from high inflation carry out monetary tightening in an immediate, drastic manner despite side effects including a fall in the economically active population, climb in unemployment and slashed pay.

It is necessary for economies to push for “targeted and temporary fiscal transfers,” in a bid to protect the underprivileged during the process of policymakers’ dealing with high consumer prices.

The organization revised down its prediction on the 2022 and 2023 world economy to 3.2 percent and 2.9 percent, respectively, from its earlier suggestion of 3.6 percent and 3.6 percent.

It predicted that the group of advanced economies -- including the US, Canada, the UK, the eurozone countries, South Korea and Japan -- would post a 2.5 percent growth this year collectively. In April, the IMF forecast a 3.3 percent growth.

For the 2023 economy of the advanced economies, it predicted a 1.4 percent growth, which is a sharp cut by 1 percentage point from an earlier estimate of 2.4 percent.

It said the US economy is projected to expand 2.3 percent in 2022 and 1 percent in 2023.

Figures suggested for Japan, China and Russia were 1.7 percent in 2022 (1.7 percent in 2023), 3.3 percent (4.6 percent) and minus 6 percent (minus 3.5 percent), respectively.

By Kim Yon-se (kys@heraldcorp.com)