IMF revises down economic growth outlook for Korea to 3 percent in 2022

In this September 2018 file photo, the International Monetary Fund (IMF) logo is displayed outside their headquarters building in Washington, U.S. Reuters-Yonhap

By Yoon Ja-young

The International Monetary Fund (IMF) lowered its growth outlook for Korea this year by 0.3 of a percentage point to 3 percent, from its previous estimate, citing the impact of the spread of the Omicron variant and the pessimistic outlook for the U.S. and China, which are Korea's key trade partners.

In its World Economic Outlook Update released Tuesday, the Washington-based IMF expected the global economy to grow 4.4 percent this year, which is down 0.5 of a percentage point from its previous estimate released in October 2021.

“The global economy enters 2022 in a weaker position than previously expected. As the new Omicron COVID-19 variant spreads, countries have reimposed mobility restrictions. Rising energy prices and supply disruptions have resulted in higher and more broad-based inflation than anticipated, notably in the United States and many emerging markets and developing economies,” it noted.

“The ongoing retrenchment of China's real estate sector and slower-than-expected recovery of private consumption also have limited growth prospects,” it added.

The IMF expects the U.S. economy to mark 4-percent growth this year, down 1.2 percentage points from its previous estimate, while lowering down its growth outlook on China by 0.8 of a percentage point, to 4.8 percent.

Korea's Ministry of Finance and Economy noted that while the IMF reduced its growth outlook for Korea, the revision was smaller compared to those of other major economies. The ministry added that the IMF seems to have taken current account and consumption trends as positive factors, on top of the impact of the supplementary budget plan that the government recently unveiled.

The 3-percent growth outlook is slightly lower than the government assessment released in December, in which it expected the economy to grow 3.1 percent this year.

While Korea and the U.S. were the only major economies that recovered to pre-pandemic growth levels by 2021, the IMF expects all G7 countries to attain growth this year.

The IMF emphasized the importance of an effective global health strategy, while the pandemic continues to maintain its grip. “Worldwide access to vaccines, tests, and treatments is essential to reduce the risk of further dangerous coronavirus variants. This requires increased production of supplies, as well as better in-country delivery systems and fairer international distribution.”

It also stressed curbing inflation. “Monetary policy in many countries will need to continue on a tightening path to curb inflationary pressures, while fiscal policy ― operating with more limited space than earlier in the pandemic ― will need to prioritize health and social spending while focusing support on the worst affected.”