Busan port. (Yonhap)
The Organization for Economic Cooperation and Development on Wednesday forecasted that the growth of the South Korean economy would stay in the 2 percent range this year in the wake of the inflationary pressure and the prolonged war between Ukraine and Russia.
Further, the France-based organization predicted that South Korea’s inflation would reach an upper 4 percent range this year.
In its latest world economic outlook report, the OECD revised down its prediction on the gross domestic product growth of Korea by 0.3 percentage point from its earlier suggestion of 3 percent to 2.7 percent.
The OECD drastically revised its forecast on the inflation rate of Korea upward to 4.8 percent, up 2.7 percentage points from its December suggestion of 2.1 percent.
“Inflation is set to remain elevated, based on the assumption that the embargo on Russian oil pushes up global oil prices in 2023,” it said.
The organization advised that “monetary policy should aim to keep inflation expectations anchored.” It also suggested “scaling back and better targeting fiscal support to those most in need would help contain inflation and address structural weaknesses.”
The OECD predicted that the world economy would expand 3 percent this year, which is lower than its earlier suggestion of 4.5 percent.
It also revised down its prediction on the growth of the 38 OECD members to 2.7 percent, from 3.9 percent earlier.
While its outlook on Korea tied with prediction on the average of the 38 economies, the OECD said the GDP of Australia would expand by 4.2 percent this year, Spain by 4.1 percent, Canada by 3.8 percent, Turkey by 3.7 percent and the UK by 3.6 percent. The US economy is projected to grow by 2.5 percent.
Earlier in the day, the Bank of Korea said in a separate report that the economy grew 0.6 percent in the first quarter this year from three months earlier, lower than the 0.7 percent growth estimated in April, citing weak investment and consumption as factors behind the revision.
Growth in GDP for January-March, which slowed from 1.3 percent on-quarter in the previous cycle, expanded to 3 percent on-year. This is a drop from the 3.1 percent growth the central bank projected in April.
“This is data on the current account and industrial production was put in later,” Hwang Sang-pil, a senior BOK official in charge of statistics, told reporters. “In particular, data on construction investment turned out to be widely different.”
The latest data showed investments in construction and facilities dropped 3.9 percent from the previous quarter, while in the same period private consumption fell 0.5 percent. But robust exports led by chips and chemical products, which jumped 3.6 percent in the same period, offset losses.
The downward GDP revision by the central bank comes as Asia’s fourth-largest economy steps up efforts to ride out persistently high inflation and avert anemic growth to follow, if prices run too high for too long.
Seoul is expected to revise its growth and inflation forecasts for this year, with officials betting on raising the inflation target to the 4 percent range -- double the projection made last year -- while slashing the growth estimate to the 2 percent range from the current 3.1 percent.
Hwang said Korea could achieve 2.7 percent growth this year if private consumption picks up speed with eased COVID-19 rules and recent cash relief. A week earlier, the parliament greenlit an extra budget aimed at helping the small businesses hit hardest by COVID-19.
“If the economy grows 0.5 percent on-quarter until the year-end, the 2.7 percent target is reachable,” Hwang said.
The OECD figure is also lower than the growth prediction of 2.8 percent suggested by the state-run Korea Development Institute, and tied with the growth prediction of 2.7 percent suggested by the Bank of Korea, Moody’s Investors Service and Fitch Ratings.
It is higher than the 2.5 percent suggested by the International Monetary Fund and S&P Global Ratings.
The Ministry of Economy and Finance of Korea, which had forecasted a 3.1 percent expansion, is also likely to revise its growth target in the coming weeks.
By Kim Yon-se and Choi Si-young (email@example.com) and Choi Si-young (firstname.lastname@example.org)