'Weakened private spending is behind Korea's downgraded forecast': experts

By Yi Whan-woo

The International Monetary Fund (IMF) lowered its 2023 economic growth forecast for Korea to 1.7 percent, Tuesday, down from the 2 percent figure announced in its previous forecast back in October of last year.

The revised outlook for Korea is comparable to the country's estimated growth of 2.6 percent in 2022. Korea's economy is also anticipated to expand 2.6 percent in 2024.

The U.S.-headquartered IMF's 2023 economic outlook is on a par with dominant projections that Asia's fourth-largest economy will display rare low growth in the 1-percent range this year.

For instance, the Ministry of Economy and Finance forecasts Korea's growth at 1.6 percent this year, compared to the Bank of Korea's projection of 1.7 percent. The Organisation for Economic Co-operation and Development (OECD) estimates Korea's economy will grow 1.8 percent in 2023, while the Asian Development Bank forecasts just 1.5 percent growth and S&P and Fitch 1.4 percent and 1.9 percent, respectively.

The IMF's lowered growth estimate for Korea, however, contrasts with its upward revision of the global economy as well as multiple advanced and emerging economies.

In its World Economic Outlook update, the IMF said, "The balance of risks remains tilted to the downside, but adverse risks have moderated since October 2022."

It added, "The global fight against inflation, Russia's war in Ukraine and a resurgence of COVID-19 in China weighed on global economic activity in 2022, and the first two factors will continue to do so in 2023."

It also noted that China's recent reopening after years of COVID-19 lockdowns has paved the way for a faster-than-expected recovery, while global headline inflation appears to have peaked in the third quarter of 2022.

Accordingly, the IMF revised up its 2023 global economic growth forecast to 2.9 percent, an improvement from its previous projection of 2.7 percent in October.

The economic growth outlook for the United States was raised to 1.4 percent from 1 percent, while that of China was revised up to 5.2 percent from 4.4 percent and Japan to 1.8 percent from 1.6 percent.

Germany's economy is projected to grow 0.1 percent, bucking previous forecasts of a 0.3 percent contraction.

The economic growth forecast remained unchanged for France at 0.7 percent, Canada at 1.5 percent and India at 6.1 percent.

The United Kingdom was among the few countries whose economic growth projection the IMF revised down.

The British economy is forecast to shrink 0.6 percent, down from the previous outlook of 0.3 percent, due to tighter fiscal and monetary policies plus high energy and retail prices that jointly weigh heavily on household budgets.

While the IMF did not explain the reasons behind revising down Korea's economic outlook, economists in Seoul viewed such a gloomy outlook as being mainly due to faltering private spending.

"A steep rate hike is increasing the burden of household debt, which is very high compared to many other countries, and correspondingly, weakens consumer expenditure," said Lee Sang-ho, head of the Economic Policy Team at Korea Economic Research Institute.

Joo Won, deputy director of Hyundai Research Institute, noted that private spending has been one of the twin engines of the nation's economy along with exports, and that it was "heavily affected by multiple rate hikes last year."

Meanwhile, the IMF projects global inflation at 6.6 percent in 2023. It did not give an inflation outlook for individual countries.

The 2.9 percent economic growth outlook for the world this year is lower than the estimated growth of 3.4 percent last year, which was below the historical average of 3.8 percent.

In 2024, the global economy is forecast to grow by 3.1 percent.