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IMF lowers Korea's growth rate for third year

Posted February. 01, 2023 07:51,   

Updated February. 01, 2023 07:51


The International Monetary Fund (IMF) has raised its economic growth forecasts for the world's major economies this year. However, the IMF projected Korea's economic growth rate to be 1.7%, down 0.3 percentage points from last October's forecast. The IMF lowered the growth rate for Korea this year from 2.9% to 2.1% in its forecast in July of last year and from 2.1% to 2.0% in October for the third time in a row.

On Monday (local time), the IMF published its World Economic Outlook report for January, predicting Korea's economic growth rate at 1.7 percent this year and 2.6 percent next year. It is the first time since the financial crisis that the IMF has set Korea's economic growth rate in the 1% range, except for 2020, when the COVID-19 pandemic was in full swing. The IMF's forecast is higher than that of the Ministry of Strategy and Finance (1.6%) and the same as that of the Bank of Korea (1.7%).

On the other hand, the IMF, which warned that the “worst” could come this year, raised its global economic growth rate by 0.2 percentage point to 2.9% thanks to slowing inflation and the unexpected recovery of the world’s three major economies – the U.S., Europe, and China. Growth rates in major countries such as the U.S. (1%→1.4%), China (4.4%→5.2%), Germany (-0.7%→0.1%), and Japan (1.6→1.8%) were also revised upward one after another.

Regarding the downward revision of Korea's economic growth rate to the extent that it lags behind Japan's, the IMF pointed out that the slumping global trade is hurting Asian countries, where exports account for a large portion of the growth. Pierre-Olivier Gourinchas, the chief economist at the International Monetary Fund, said that despite the reopening of the Chinese economy, trade-dependent Asian economies are expected to take a hit from slowing trade.

The Ministry of Strategy and Finance believes that the continued tumble in exports and manufacturing and a weakening recovery in domestic demand are dragging down the Korean economy. Exports, the backbone of the economy, decreased 2.7% YoY through Jan. 20, and are highly likely to remain negative for four consecutive months. Amid sluggish exports and domestic demand, the Bank of Korea is expected to lower its growth forecast for this year sometime this month.

Hyoun-Soo Kim kimhs@donga.com · Hee-Chang Park ramblas@donga.com