Chip downcycle, lackluster private spending behind lowered growth outlook for Korea: IMF official

Krishna Srinivasan, director of the International Monetary Fund's (IMF's) Asia-Pacific Department, speaks at Bank of Korea (BOK) headquarters in this photo taken during his latest visit to Seoul in October 2022. Korea Times file

By Yi Whan-woo

The International Monetary Fund (IMF) has slashed its 2023 growth forecast for Korea this month, the fourth consecutive downward revision of the country's economic outlook, due to the global chip downturn and weakening domestic consumer expenditure, a senior IMF official said.

“There's been a worse-than-expected global semiconductor cycle which has a bearing on Korea,” Krishna Srinivasan, the director of the IMF's Asia-Pacific Department, said during a press briefing on the regional economy in Washington, D.C., Thursday (local time.).

He mentioned that since semiconductors are Korea's key export item, the global chip downcycle has a bearing on the country's export-reliant economy by adversely affecting both chipmakers and investors.

Srinivasan also addressed the issue of private spending, another major driver of Korea's growth, saying that it has been weakening due to pandemic-induced inflation and monetary tightening that has been paused only recently, as well as the current housing slump.

“All that feeds into domestic demand waning compared to what we had in the past,” he said.

The IMF press briefing took place as a part of the Spring Meetings of the Board of Governors of the World Bank Group and the IMF.

For its world economic outlook, updated every three months, the Washington-headquartered IMF lowered its 2023 growth forecast for Korea to 1.5 percent, Tuesday.

The forecast was down from previous outlooks of 2.9 percent in July 2022, 2 percent in October 2022 and 1.7 percent in January this year.

The director said external demand from China is anticipated to “play a factor in Korea's growth prospects,” in the second half of the year.

Seoul hopes that the country's economy will remain sluggish throughout the first half but will rebound in the following six months, with China's reopening causing a spillover effect.

An economist in Seoul assessed the IMF's lowered growth outlook for Korea saying that it “reflects the sensitive nature of the country's economy in relation to global risks.”

“Korea's GDP growth assumes exports must go smoothly, and a downward chip cycle worldwide suggests it will take time for the country's economy to rebound,” Hanyang University economics professor Lee Jeong-hwan said.

Srinivasan added that the impact on Asia, including Korea, has been limited concerning the recent global banking turmoil, which was sparked by the collapses of Silicon Valley Bank (SVB) in the United States and Credit Suisse in Europe.