2022 growth forecast lowered to 2.3 percent by the IMF

The International Monetary Fund (IMF) cut its 2022 economic growth outlook for Korea to 2.3 percent.

The projection dropped by 0.2 percentage points from the fund's forecast in April. It is the lowest growth forecast by a major organization or institution for Korea this year.

Fitch is anticipating 2.4 percent growth, S&P 2.6 percent, the government 2.6 percent, the Bank of Korea 2.7 percent and the OECD 2.7 percent. The Asia Development Bank (ADB) slashed its growth outlook for Korea to 2.6 percent on July 21 but this is still higher than the IMF's estimate.

In its World Economic Outlook report released on Tuesday, the IMF listed global inflation, tightening monetary policy, China's economic slowdown, the war in Ukraine and the food crisis as key factors in its downward revision of the growth forecast.

"The global slowdown intensifies as downside risks materialize, with higher inflation worldwide, especially in the United States and major European economies," the report said.

"China's economic slowdown has added to global supply chain disruptions."

Korea's economy is highly reliant on China, with the country taking 20 percent of Korea's exports, and has recorded consecutive monthly trade deficits with China since May.

The IMF's forecast for next year is looking even gloomier. It projects Korea's economic growth at 2.1 percent for 2023, 0.8 percentage points lower than its forecast three months ago.

"In 2023, disinflationary monetary policy is expected to bite, with global output growing by just 2.9 percent," the report said.

The IMF notes the war in Ukraine and export restrictions in several countries have worsened the food crisis. Korea's consumer prices rose 6.0 percent on year in June due to factors such as high dining-out costs. The last time they rose at this pace was in 1998, as the country was in the depths of the Asian financial crisis.

In its latest report, the IMF is forecasting 6.6 percent inflation in advanced economies and 9.5 percent in emerging market and developing economies in 2022. The Ministry of Economy and Finance expects the inflation rate will fall in Korea after October.

The fund revised its forecast for global economic growth to 3.2 percent, down 0.4 percentage points from its outlook in April.

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 1.4 percentage points to 2.3 percent, and its Eurozone growth projection was lowered 0.2 percentage points to 2.6 percent.

U.S. economic growth has been sharply revised downward due to lower growth earlier this year, reduced household purchasing power and tighter monetary policy.

China's economy is expected to slow, with the fund projecting 3.3 percent growth, which is 1.1 percentage points lower than the earlier projection. The fund noted the country's extended lockdowns, tightening global financial conditions and the spillovers from the war in Ukraine.

Russia's economy this year is anticipated to contract 6 percent, revised from April's projection of 8.5 percent contraction.

"While price stability is restored, the vulnerable should be protected," the fund said in its latest report.

It raised concerns about how the process of taming inflation, such as tighter monetary policy, will take an economic toll and affect financial stability but stressed the need for these policies as the delay will only worsen the cost.

"Where external shocks cannot be absorbed by flexible exchange rates alone, policymakers should be ready to act," the report noted.

"Where debt levels are high, governments should preemptively reduce reliance on foreign currency borrowing."

BY IM SOUNG-BIN, CHO JUNG-WOO [cho.jungwoo1@joongang.co.kr]