IMF raises Korea's 2022 inflation outlook to 5.5%

The Korea Times

The Korea Times

Finance

Mon, October 2, 2023 | 11:19

Economy

IMF raises Korea's 2022 inflation outlook to 5.5%

Posted : 2022-10-11 22:00

Updated : 2022-10-12 16:23

Government advised to continue monetary tightening

By Yi Whan-woo

The International Monetary Fund (IMF) raised its 2022 inflation outlook for Korea to 5.5 percent, Tuesday, up from 4 percent in its previous forecast made in April, citing growing downside risks for the global economy.

In its updated world economic outlook for this year, the IMF said downside risks are deepened by soaring prices, higher exchange rates per dollar and other negative factors that are being witnessed throughout the world.

The IMF accordingly elevated next year's inflation forecast for Korea to 3.8 percent, up from 2.5 percent projected in April.

The U.S.-headquartered institution said Korea's economy is expected to grow 2.6 percent in 2022 ― a turnaround after the forecast was lowered from 3 percent in January to 2.5 percent in April and down further to 2.3 percent in July.

But for 2023, the growth outlook for Asia's fourth-largest economy was lowered slightly to 2 percent from 2.1 percent in July, reflecting the increasing downside risks.

The IMF referred to a strong dollar against other currencies and rising international tensions as adding to global economic downside risks along with Russia cutting off its gas supply to Europe, the resurgence of COVID-19, debt vulnerability in emerging markets and a crash in China's real estate market. Prolonged inflation due to additional shocks from the food and energy sectors was also cited as a risk factor.

For possible solutions, the IMF suggested prioritizing the fight against inflation in fiscal and monetary policies.

Specifically, it urged governments to maintain a tight monetary policy even at the expense of increases in unemployment, and to reduce fiscal deficit, intervene in the currency market if needed and embrace the principles of free trade.

Korea's gross domestic product (GDP) growth outlook is comparable to the expansionary potential of the global economy, which remains unchanged at 3.2 percent for 2022, but was lowered to 2.7 percent from 2.9 percent for 2023.

Citing the IMF, Seoul's finance ministry noted 33 percent of countries around the world suffered declines in their GDP growth for two consecutive quarters and that their economic growth will slow further next year.

Of the major economies, this year's growth forecast for the United States was lowered by 0.7 percentage point to 1.6 percent, and those of China and Canada were lowered by 0.1 percentage point to 3.2 percent and 3.3 percent, respectively.

Germany saw its 2022 growth outlook raised by 0.3 percentage point to 1.5 percent. France also saw an increase of 0.2 percentage point to 2.5 percent, while the United Kingdom went up by 0.4 percentage point to 3.6 percent, Italy rose by 0.2 percentage point to 3.2 percent and Spain went up by 0.3 percentage point to 4.3 percent.

The IMF revised up its 2022 growth outlook for Russia to 3.4 percent from minus 6 percent, noting the country is boosting oil exports to spur its economy hit by Western sanctions over its invasion of Ukraine.

The IMF forecast global inflation in 2022 to accelerate at 8.8 percent, up from 8.3 percent forecast in July.

For 2023, it projected global inflation at 6.5 percent, up from 5.7 percent in July.

yistory@koreatimes.co.kr