2.7 percent growth projected for 2022 by the OECD

A shopper buying eggs at a grocery store in Seoul. Rising inflation is considered to be the biggest factor holding back Korea's economic growth for this year. [NEWS1]

The Organization for Economic Cooperation and Development (OECD) on Wednesday lowered its outlook for Korea's economic growth this year 0.3 percentage points to 2.7 percent.

That is lower than the 2.8 percent forecast by the Korea Development Institute but higher than the International Monetary Fund's 2.5 percent.

The OECD's outlook for the global economy is 3.0 percent, down 1.5 percentage points from the earlier estimate.

Inflation was a major factor in the downward adjustments.

Korea's consumer prices are expected to increase 4.8 percent this year. In December, the OECD projected the year-on-year increase at 2.1 percent.

The KDI projects consumer prices to increase 4.2 percent in 2022, the IMF 4 percent and the Bank of Korea 4.5 percent.

"Inflation is set to remain elevated, based on the assumption that the embargo on Russian oil pushes up global oil prices," the OECD report noted.
The world's consumer prices are projected to grow 8.8 percent this year. That's a significant jump considering that in December it was projected at 4.4 percent.

Due to internal and external crises, Korea's inflation rate, which has been steadily rising since 2021, exceeded 5 percent in May for the first time since 2008.

The Yoon Suk-yeol government has been implementing policies that will help households manage in an inflationary environment. Tariffs on pork and cooking oil have been suspended.

According to the OECD, rising consumer prices are likely to affect consumer spending.

Spending in the private sector is expected to grow 2.3 percent this year. In December, it was projected to increase 3.3 percent.

Government spending is expected to grow 3.7 percent, slower than the 4.3 percent projected in December.

Trade is forecast to remain strong.

The OECD projects Korea's exports to increase 9.2 percent this year, which is faster than the 2.1 percent growth projected in December. Imports are expected to increase 7.3 percent, up from 2.1 percent.

The key to Korea's growth is whether the Ukraine situation is quickly resolved.
The OECD noted that business investment is set for "solid growth," with substantial planned investment in some key areas.

If the situation in Ukraine deteriorates, it will have some negative impact, including on Korea's semiconductor industry.

For 2023, the OECD projects Korea's economy to grow 2.5 percent, slower than its 2.7 percent forecast in December. However, inflation is expected to continue, with consumer prices rising 3.8 percent, higher than the 1.5 percent projected six months ago.

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