SEOUL– The Organization for Economic Cooperation and Development (OECD) on Tuesday lowered its outlook for South Korea’s growth for next year, citing uncertainties in the global economy.

In its report on next year’s world economy, the Paris-based organization said South Korea’s gross domestic product is expected to grow 1.8 percent in 2023, lower than its previous forecast of 2.2 percent.

The latest outlook is below the 2.1 percent growth estimate by the Bank of Korea and the 2 percent by the International Monetary Fund.

The OECD said that the South Korean economy is expected to grow 2.7 percent this year.

Meanwhile, the growth outlook for the global economy came to 2.2 percent in 2023, unchanged from the previous estimate.

The OECD said soaring energy prices, sparked by the war between Russia and Ukraine, are leading to inflation and slowed growth around the globe.

The OECD said the global economy is expected to start recovery in 2024 by expanding 2.7 percent.

As for South Korea, the OECD said its private consumption is expected to feel the pinch of inflation down the road despite its recent recovery.

Exports are also anticipated to be affected by the sluggish performance of chips and the weak global demand, it added.

The OECD advised South Korea to maintain its monetary tightening policy to cope with inflation.

“Monetary policy tightening should continue to re-anchor inflation expectations,” the OECD said. “Fiscal consolidation should proceed, and the proposed fiscal rule should be adopted by the National Assembly to help reduce inflationary pressures and prepare for rapid population ageing.”

Last month, the Bank of Korea raised its key rate by 0.5 percentage point to 3 percent to tackle inflation. It marked the second-ever big-step increase and the eighth rise in borrowing costs since August last year amid the inflation pressure.

The South Korean central bank is widely expected to carry out another rate hike at this year’s last policy meeting set for Thursday.

The OECD also advised South Korea to narrow the gap between large and small companies in terms of productivity.

“Structural reforms should facilitate a reallocation of labor and capital to expanding sectors and strengthen competition to address productivity gaps between large and small companies,” the Paris-based organization said.

“Reducing the stringency of product market regulation would help to lower productivity gaps between large and small firms and reduce labor market dualism,” it added.

Source: Yonhap News Agency