IMF lowers 2022 growth forecast by half a point to 2.5%

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IMF lowers 2022 growth forecast by half a point to 2.5%

  Stores prepare for regular operating hours as restrictions were lifted on Monday. Despite Korea returning back to the time before the Covid-19 outbreak, the war between Russia and Ukraine is significant drag on economic growth. [YONHAP]

Stores prepare for regular operating hours as restrictions were lifted on Monday. Despite Korea returning back to the time before the Covid-19 outbreak, the war between Russia and Ukraine is significant drag on economic growth. [YONHAP]

The International Monetary Fund (IMF) cut its 2022 economic growth outlook for Korea by half a point to 2.5 percent.  
 
It would be the slowest growth since 2020, the first year of the pandemic.
 
That year, the GDP contracted 0.9 percent. Last year, growth was 4.0 percent, with the base effect helping boost the number.  
 
The projection for 2022 is lower than the government's 3.1 percent projection, the Bank of Korea's 3.0 percent and the OECD's 3.0 percent, all of which were made before the Russia-Ukraine war broke out.  
 
Fitch forecast 2.7 percent growth in a projection published in March, and S&P is anticipating 2.5 percent growth.  
 
In its latest report, the IMF is forecasting 4.0 percent inflation in 2022, up from its previous forecast of 3.1 percent.  
 
The fund revised its forecast for global economic growth to 3.6 percent, down 0.8 percentage points from its outlook in January.
 
In its World Economic Outlook report released on Tuesday, the IMF listed the global tightening of monetary policies, which had been loosened during the pandemic, slowing growth in China and the war in Ukraine as key factors in its downward revision of the growth forecast.  
 
"The economic effects of the war are spreading far and wide — like seismic waves that emanate from the epicenter of an earthquake — mainly through commodity markets, trade and financial linkages," Pierre-Olivier Gourinchas, IMF economic counsellor and director of research, was quoted as saying in the outlook report. He noted that Russia is a major supplier of oil, gas and metals and Ukraine of wheat and corn.  
 
"The current and anticipated decline in the supply of these commodities has already driven their prices up sharply," Gourinchas noted. "There is a rising risk that inflation expectations become de-anchored, prompting a more aggressive tightening response from central banks. In emerging markets and developing economies, increases in food and fuel prices could significantly increase the risk of social unrest."
 
The IMF noted that the war in Ukraine has only complicated the already difficult choices countries face — tackling inflation versus safeguarding recovery.  
 
The growth projections for large advanced economies, including the United States, Europe, Britain and Japan, have been lowered.  
 
Its U.S. growth projection was lowered 0.3 percentage points to 3.7 percent, and its eurozone growth projection was lowered 1.1 percentage points to 2.8 percent.
 
The IMF report states that the economic links between Russia and the United States are limited. The latest revision was due to a "faster withdrawal of monetary support" as a result of efforts to rein in inflation and lower trade growth.  
 
Europe's economic growth has been revised sharply downward due to the dependence of some countries on Russia, including Germany and Italy.  
 
China's economy is expected to grow 4.4 percent, which is 0.4 percentage points lower than the earlier projection. In China, which is Korea's biggest trading partner, growth is slowing quickly.  
 
The fund noted the country's zero-Covid strategy and weakness in the property market due to tightening regulations.
 
Russia's economy this year is expected to contract 8.5 percent and Ukraine's 35 percent.  
 
"The severe collapse in Ukraine is a direct result of the invasion, destruction of infrastructure, and exodus of its people," the IMF report noted. "In Russia, the sharp decline reflects the impact of the sanctions with a severing of trade ties, greatly impaired domestic financial intermediation, and loss of confidence."

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]
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