IMF reduces Korea’s growth outlook again

The International Monetary Fund (IMF) lowered the economic growth outlook for Korea by 0.3 percentage points from 2% growth to 1.7% on Tuesday. This is the third consecutive downgrade after -0.8 percentage points in July and -0.1 percentage points in October last year. Even the IMF outlook, which remained at the 2% range and higher than other major economic institutes from home and abroad, has dropped to the 1% range.

The IMF’s adjustment for Korea signals the severity of the downgrade in that it raised the global economic outlook. The IMF, which had warned of a global economic recession, raised the global economic outlook to 2.9%, 0.2% point higher than three months earlier. The outlook of the U.S., Eurozone, Japan, and other major economies was lifted, backed by stronger-than-expected domestic economies, and relieved energy concerns. China’s economic outlook rose to 5.2% (0.8 percentage point raise) based on expectations for eased COVID-19 restrictions. Contrary to such expectations, however, Korea was the only economy to see its outlook slip.

The decline of the Korean economy is attributable to the sluggish outlook of the semiconductor industry, slowing exports of chemicals and displays, and the downturn of the domestic economy due to high-interest rates and inflation. Still, it is a serious sign that Korea was the only economy to see its economic growth reverse, while key economies, including China, are poised for growth. We should seriously reflect on whether we had not paid enough attention to IMF’s warnings by blaming temporary external factors.

What is even more serious is that the Korean economy is not able to find the right opportunity for an economic comeback. The operating profit of the semiconductor business at Samsung Electronics in Q4 declined by 97% compared to the same period last year. In addition, seven out of 10 companies that announced Q4 performance last year showed performance equivalent to earning shock. The government estimated to see exports dwindle by 4.5% compared to last year. The Business Survey Index (BSI) has dropped to a two-and-half-year low, coupled with domestic recession. Unless Korea finds a breakthrough, we are at risk of being mired in zero growth.

Overcoming the economic crisis should start by inducing investment from businesses. Investment in new industries, such as semiconductors, bio, and green energy, can serve as new engines for growth and is more needed than ever. Economic fundamentals need to be improved by structural reform and efficiency improvement. The government and National Assembly should waste no efforts in removing regulations and expanding tax benefits. We should not rely on an optimistic outlook that the economic situation may improve in the year's second half.