Fitch cuts 2022 growth outlook for Korea to 2.7% amid Ukraine crisis

gettyimagesbank

Global credit appraiser Fitch Ratings lowered its 2022 growth outlook for the Korean economy to 2.7 percent from 3 percent, Tuesday, citing the economic fallout of the Russian invasion of Ukraine.

"The rise in energy prices related to the Ukraine-Russia conflict will act as a drag on household consumption and business activity," Fitch said in a report on the 2022 global economic outlook.

The report said, "Diminished global demand in 2022 will also weigh on the export sector, while supply-chain disruptions may take longer to ease."

Fitch's downward revision came as the Korean economy faces growing uncertainty from the Ukraine crisis and the upsurge in COVID-19 cases.

On Monday, Korea reported 353,980 new COVID-19 infections, raising the total caseload to 9,936,540, the Korea Disease Control and Prevention Agency (KDCA) said. The total caseload is expected to breach the grim milestone of 10 million, Tuesday, meaning 1 out of 5 Koreans have been infected with COVID-19.

Last week, Moody's Investors Service also lowered its 2022 growth forecast for Asia's fourth-largest economy to 2.7 percent from 3 percent.

In February, the Bank of Korea maintained its growth outlook for the Korean economy at 3 percent for this year. But the BOK raised its inflation growth outlook to 3.1 percent from 2 percent.

Fitch also revised up its 2022 inflation forecast for Korea to 4.1 percent from its earlier estimate of 2.6 percent. The agency forecast Korea's inflation growth to remain above 3.5 percent until the beginning of 2023.

The rating agency said the BOK is expected to hike its key rate to 2 percent by the end of the year from the current 1.25 percent. In January, Fitch forecast the BOK to raise the key rate to 1.75 percent for 2022.

"We expect the tightening cycle to resume in the April meeting," Fitch said.

Korea's consumer prices grew 3.7 percent year-on-year in February, marking the fifth straight month that inflation has grown more than 3 percent, amid surging energy costs. Korea heavily relies on imports for most of its energy needs.

In February, the BOK froze the benchmark interest rate at 1.25 percent amid concerns that the surge in virus cases and the Ukraine conflict could undercut economic recovery momentum.

But the BOK is widely expected to further hike the interest rate in the coming months to tame inflation. The BOK raised the base rate by a quarter percentage point in January, marking the third rise since August last year.

Fitch has maintained Korea's sovereign rating at "AA-," the fourth-highest level on its table, with a "stable" outlook. (Yonhap)