IMF cuts Korea's 2022 growth forecast to 2.5% from 3%

International organization slashes outlook for world economy to 3.6% from 4.4%

By Yi Whan-woo

The International Monetary Fund (IMF) slashed its 2022 growth forecast for Korea to 2.5 percent, Thursday, down from 3 percent in its previous outlook given in January.

The lowered economic outlook for the world's 10th-largest economy comes as uncertainty has been growing amid a prolonged war in Ukraine and soaring inflation, which the IMF said has been casting a shadow on major and emerging economies alike.

The IMF kept its economic outlook for Korea in 2023 unchanged at 2.9 percent.

This was the IMF's first update on its World Economic Outlook report since the beginning of Russia's invasion of Ukraine, Feb. 24.

The crisis increased downside risks for the global economy due to slowed growth in China, supply chain disruptions and the spread of the COVID-19 Omicron variant.

The IMF accordingly revised down the global economic outlook to 3.6 percent from 4.4 percent, compared to the World Bank which slashed its global growth forecast to 3.2 percent from 4.1 percent.

The International Monetary Fund logo is seen outside its headquarters during the IMF/World Bank spring meeting in Washington, D.C., in this photo taken in April 2018. Reuters-Yonhap

After analyzing the IMF report, the Ministry of Economy and Finance, however, assessed the Ukraine crisis nevertheless had a limited impact on the Korean economy compared to major economies in general. It viewed the 0.5 percentage point fall on Korea's growth forecast as moderate.

The growth forecast for the United States was lowered by 0.3 percentage points to 3.7 percent, while that for China fell by 0.4 percentage points to 4.4 percent, Japan 0.9 percentage points to 2.4 percent, Germany 1.7 percentage points to 2.1 percent and the United Kingdom 1 percentage point to 3.7 percent.

The advanced economies as a whole are estimated to grow 3.3 percent, down from 3.9 percent in the previous estimation. The growth forecast for the emerging economies was lowered to 3.8 percent from 4.8 percent.

“The Korean economy is assessed to be relatively resilient despite inflationary pressure heightened by the Ukraine war,” the ministry said.

It cited an exclusive contribution to The Korea Times, titled “Strong policies help Korea navigate uncertain times,” by the IMF's Korea mission team.

Published on April 10, it reads, “Korea is well placed to navigate challenging global conditions” should risks to the outlook materialize over the Ukraine crisis.

It pointed out the country's fiscal policy has ample room to provide further economic support and there is also space for monetary stimulus.

Citing the IMF data, the ministry went on to say Korea's average economic growth in the 2020-22 period is higher compared to G7 countries except for the U.S. when base effects are excluded.

Korea marked 1.85 percent growth, compared to the U.S.' 1.92 percent, Canada's 0.96 percent, Germany's 0.63 percent, France's 0.43 percent and the U.K.'s 0.15 percent.

During the cited period, the economy of Japan is estimated to shrink 0.28 percent and Italy's is estimated to decrease by 1.48 percent.

The IMF revised up Korea's consumer price inflation for this year from 3.1 percent to 4 percent.

The revised outlook is still lower compared to most of the G7 countries, with 4.1 percent for France, 5.5 percent for Germany, 5.6 percent for Canada, 7.4 percent for the U.K. and 7.7 percent for the U.S.

“The rise in global oil prices and other impacts from the Ukraine crisis can be said to be offset to some extent due to our government's extended oil tax cut,” the ministry said.

Korea is projected to surpass the G7 in average economic growth for the 2020-23 period. According to the IMF, the country's economy is estimated to grow 2.11 percent, compared to 2.02 percent for the U.S., 1.42 percent for Canada, 1.02 percent for Germany, 0.67 percent for France, 0.41 percent for the U.K. and 0.36 percent for Japan. The economy of Italy is forecasted to shrink 0.45 percent during the cited period.

Meanwhile, the IMF advised the governments to consider tightening their monetary policies as a countermeasure against inflation, but said they will need to fine-tune such policies in accordance with their goals for economic recovery.