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| International Monetary Fund (IMF) Deputy Managing Director Gita Gopinath / Courtesy of IMF |
Gopinath says gov't's labor, pension reform drive as step in right direction
By Yi Whan-woo
A high-ranking official from the International Monetary Fund (IMF) says that the likelihood of a recession in the Korean economy this year is slim, as China's COVID-19 reopening will provide the impetus for growth.
In an interview with The Korea Times in Seoul, Tuesday, IMF Deputy Managing Director Gita Gopinath forecast that the Korean economy will continue to stay in the doldrums in the first half before bouncing back in the second half in line with a recovery of the Chinese economy.
"We have growth slowing down, but we have no recession in our baseline for Korea," Gopinath said.
Citing China's reopening after years of COVID lockdown, she sided with the Korean government's prediction that the nation's economy will start gaining growth momentum in the second half.
"That is consistent with our view that the weakness in the last quarter of 2022 will carry over into the first half of this year, especially because of the effects of the monetary policy tightening which takes some time to work through the system," she said. "But in the second half, we expect to see a recovery in growth and then into 2024 … because of positive spillovers from China's recovery."
The Korean economy is forecast to grow by 2.6 percent in 2024.
Gopinath's comment comes after the IMF, in its updated world economic outlook report released Tuesday, downgraded the 2023 growth outlook for Korea to 1.7 percent from 2 percent projected back in October.
Prior to the IMF's forecast, the Organisation for Economic Co-operation and Development (OECD) lowered its growth forecast for Korea to 1.8 percent from 2.2 percent, while the Asian Development Bank (ADB) revised the outlook to 1.5 percent from 2.3 percent.
The IMF report added to the especially murky economic look for Asia's fourth-largest economy. Its forecasts for the world and multiple individual countries, in contrast, have been upgraded.
The report even prompted a response from the presidential office, which recognized the IMF report "as very authoritative," but still noted that "there should be some time differences (with the Korean government) when it comes to economic outlooks for certain individual countries."
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| Gita Gopinath, left, deputy managing director of the International Monetary Fund (IMF), shakes hands with Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho during their meeting at Government Complex Seoul in downtown Seoul, Tuesday. Courtesy of Ministry of Economy and Finance |
Under the circumstances, Gopinath explained that the downgraded outlook for Korea was "a reflection of tightening global financial conditions and tightening domestic financial conditions."
In particular, she said that weakened growth momentum from a contraction in the last quarter of 2022 is being reflected in 2023.
The Korean economy contracted 0.4 percent in the final three months of last year ― for the first time in 10 quarters ― as its two main drivers ― private spending and exports ― jointly declined amid the global economic slowdown.
Asked about major risks that fiscal and monetary policymakers should pay attention to, Gopinath pointed to the prolonged war in Ukraine, high inflation and interest rates, a sluggish housing market and a decoupling of global supply chains.
She assessed the Korean government as "doing the right thing" by pairing fiscal tightening and monetary tightening "so that both of them work in the direction of bringing down inflation."
"The government has been broadly doing what is broadly consistent with what we would recommend," she said.
Gopinath viewed President Yoon Suk Yeol's push for three major reforms of labor, education and pension as critical in coping with an aging society and declining population.
The IMF estimates Korea's medium-term growth at just over 2 percent. According to Gopinath, structural reform in these three areas can "ensure that the fiscal situation is sound."
"I think reforms of this kind will be very beneficial as they can improve the flexibility of the labor market, allow easier entry into product markets and make education systems more consistent with the jobs of today," she said.
As possible solutions to embrace demographic change, Gopinath suggested bringing more women into the workforce, adopting more work-life balance, allowing greater flexibility for women, especially when they want to return after leaving the workforce due to childcare, and adopting more performance-based wage systems instead of time duration-based systems.
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