IMF lowers 2024 Korea growth forecast by 0.2 points to 2.2%

The International Monetary Fund (IMF) has lowered its growth forecast for South Korea next year by 0.2 percentage points compared to its July projection. This revision is attributed to the weaker-than-expected economic recovery in China, rising oil prices, and other factors, which are expected to keep the South Korean economy on a sluggish path next year. Additionally, it has been confirmed that South Korea's growth rate for this year will be overtaken by Japan for the first time in 25 years following the Asian financial crisis.

The IMF has also reduced its global economic growth forecast for next year to 2.9%, which is 0.1 percentage points lower than three months ago. Along with South Korea, growth forecasts for major countries such as China, Germany, the United Kingdom, and Italy have all been downgraded by 0.2 to 0.4 percentage points. South Korea's growth outlook has been adjusted from 2.4% to 2.2%. In contrast, with a robust economy, the United States has seen its growth projection increase to 1.5%, a 0.5 percentage point rise, while Japan's growth forecast remains at 1.0%.

The reason behind the IMF's downward revision of global economic growth prospects for next year is the increasing possibility of prolonged inflation leading to higher interest rates. Furthermore, the recent Israel-Hamas conflict's impact has not been factored into this forecast. If the situation spreads throughout the Middle East, there is an increased likelihood of stagflation (high inflation amid economic stagnation) occurring in various countries, like the series of oil shocks of the 1970s.

South Korea's situation is particularly concerning due to its heavy reliance on oil imports, with nearly 70% coming from the Middle East. Despite a 12-month consecutive decline in exports, South Korea managed a trade surplus in the past four months, mainly due to lower oil prices than the previous year. If oil prices approach $100 per barrel again, it could fuel inflation again, and pressure for price hikes such as power bills, which have been curved by the government so far, could also grow.

In the short term, South Korea's growth rate for this year is expected to be lower than that of Japan, an economy characterized by "perpetually low growth.” The IMF, which had previously projected South Korea and Japan's growth rates at 1.4% in July, has now raised Japan's growth forecast to 2.0%, an increase of 0.6 percentage points. This is attributable to the export companies benefiting from the "weaker yen " making aggressive investments and a surge of tourists from around the world boosting Japan's service sector, leading to an economic revival.