SEOUL– The International Monetary Fund (IMF) on Tuesday revised up its 2022 economic growth outlook for South Korea to 2.6 percent amid the country’s improving private spending on eased virus restrictions.
The revision marked a 0.3 percentage point rise from the growth forecast of 2.3 percent that the Washington-based organization made in July. The IMF, however, cut next year’s growth estimate for South Korea to 2 percent from the previous forecast of 2.1 percent.
The updated outlook for this year is in line with the Bank of Korea’s forecast of 2.6 percent growth outlook in August.
The IMF, meanwhile, maintained its 3.2 percent growth forecast for the global economy in 2022 while lowering next year’s outlook to 2.7 percent, down 0.2 percentage point from the previous estimate, citing inflation and global monetary tightening.
The organization also projected the U.S. economy to grow 1.6 percent this year, down a whopping 0.7 percentage point from the previous estimate.
The IMF warned that the global economy might face downside risks due to high inflation, the strong dollar, and other protracted risks.
Asia’s No. 4 economy grew at a faster pace in the second quarter of this year as private spending rose amid eased COVID-19 restrictions.
The country’s gross domestic product (GDP) — a key measure of economic growth — increased 0.7 percent in the April-June period from three months earlier, according to the preliminary data from the central bank. The growth slightly quickened from the previous quarter’s 0.6 percent rise.
But the South Korean economy has also been facing concerns over stagflation, a mix of slowing growth and high inflation, amid the protracted war between Russia and Ukraine that led to soaring oil and commodity prices.
South Korea also suffered a trade deficit for the sixth consecutive month through September due to high global energy prices, with the country likely to post another deficit this month.
The South Korean currency’s sharp weakness against the dollar following the U.S. Federal Reserve’s aggressive rate hikes is weighing down the economy as well.
The South Korean won has depreciated about 16 percent against the greenback this year. A weak currency usually heightens inflation pressure as it makes imports more expensive.
In line with efforts to curb inflation, South Korea’s central bank has hiked its policy rate by 2 percentage points since August last year, including an unprecedented 0.5 percentage-point jump in July.
The Bank of Korea is scheduled to hold a rate-setting meeting on Wednesday, with experts widely anticipating another hike.
In its latest report, the IMF added that countries should prioritize handling inflation and carry out substantial and consistent belt-tightening moves even if they cost jobs.
The central bank’s inflation outlook for 2022 currently stands at 5.2 percent, the highest projection since it introduced the inflation target system currently in place in 1998.
Source: Yonhap News Agency