The International Monetary Fund (IMF) on Tuesday maintained its 2022 growth outlook for South Korea at 3 percent as exports and investment will likely remain robust despite heightened economic uncertainty.
The IMF’s latest projection is the same as its forecast made in January. It lowered its 2023 growth outlook for Asia’s fourth-largest economy to 2.8 percent from 2.9 percent.
The Washington-based organization said South Korea’s economic growth is projected to remain robust in 2022 and 2023 on the back of continued strong exports and investment.
“Softer growth in the first quarter of this year due to omicron is expected to be temporary. Supply bottlenecks that impacted production in several sectors in 2021 are also normalizing,” the IMF said in a report on its annual consultations with South Korea.
The IMF’s forecast is on par with the 3 percent growth estimate by the Bank of Korea (BOK). It is higher than the 2.7 percent growth forecasts by global credit appraisers Moody’s Investors Service and Fitch Ratings.
South Korea is on a recovery track on the back of robust exports. But it faces increased economic uncertainties at home and abroad amid the upsurge in COVID-19 cases and the Ukraine crisis.
The IMF said major downside risks to Korea’s growth outlook include heightened global uncertainties and monetary tightening by advanced economies. The surge in virus infections, elevated household debt and high housing prices are also posing downside risks to the economic growth, it noted.
On inflation, the IMF forecast South Korea’s consumer prices to grow 3.1 percent this year, higher than its October estimate of 2.2 percent. It expects inflation growth to slow to 2.1 percent next year.
South Korea’s consumer prices grew 3.7 percent on-year in February amid soaring energy costs. Inflation rose more than 3 percent for the fifth straight month, well above the BOK’s inflation target of 2 percent.
Last month, the BOK revised up its inflation outlook for this year to 3.1 percent from its earlier projection of 2 percent.
IMF executive directors agreed “the pace of (South Korea’s) policy normalization should continue to weigh the strength of the recovery against” heightened economic risks, the report said.
“They noted that Korea has ample fiscal space to provide targeted support to the economy in the event that stagflationary pressures arise,” it said.
In February, the BOK froze the benchmark interest rate at 1.25 percent after hiking it three times since August last year. The BOK is widely expected to further raise borrowing costs in the coming months to tame inflation.
The government has maintained expansionary fiscal policy to prop up the economic recovery. Last month, the country drew up this year’s first extra budget of 16.9 trillion won ($13.8 billion) to support pandemic-hit merchants and vulnerable people.
The IMF also voiced concerns about the rapid growth of household credit and housing prices and recommended the government tighten macroprudential policies further when needed. (Yonhap)