OECD cuts Korea’s 2023 economic forecast to 1.4 percent

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OECD cuts Korea’s 2023 economic forecast to 1.4 percent

Published: 29 Nov. 2023, 19:00

JIN MIN-JI
[email protected]

Containers are stacked up at a pier in Busan on Nov. 21. [JOONGANG PHOTO]

The Organisation for Economic Co-operation and Development (OECD) has slashed Korea’s 2023 economic forecast to 1.4 percent, citing weak domestic spending amid high inflation.

The OECD dropped the forecast by a 0.1 percentage point from its previous estimate in September, according to its report on Wednesday. But it raised the growth forecast for next year by 0.2 percentage points to 2.3 percent, followed by 2.1 percent estimated growth in 2025.

Debt repayment and high inflation will affect spending and investment in the short run, but the OECD projected the domestic economy to recover as it nears the second half of next year, according to the Ministry of Economy and Finance.

The Paris-headquartered international organization also assessed Korea’s exports to be on the path to recovery, helped by an improvement in chip exports, the ministry added.

The OECD raised Korea’s inflation forecast by 0.2 and 0.1 percentage points this year and next year, respectively, to 3.6 percent and 2.7 percent.

It estimates Korea will near the target inflation rate of 2 percent in 2025.

The OECD noted the need to raise financial soundness considering the rapidly aging society, which will increase the cost for welfare and pensions. It mentioned fiscal rule and selective financial support toward the socially vulnerable as the potential solutions.

Fiscal rule is a long-lasting constraint on fiscal policy through numerical limits on budgetary aggregates.

Support toward small-and medium-sized enterprises to reduce production capacity with conglomerates and policy that enables the compatibility of work and the household were also recommended by the OECD.

The OECD revised down the global forecast for 2023 by 0.1 percentage point to 2.9 percent, citing restrictive financial conditions following the outbreak of wars. The estimate for next year remained unchanged at 2.7 percent, followed by 3.0 percent forecast for 2025.

The global economy will slow through the first half of 2024, but will start to lift up from the second half of the year as monetary policy gradually eases, it said.

It projected average inflation of G20 nations to grow 6.2 percent this year, up 0.2 percentage points, followed by 5.8 percent growth in the following year, up 1.0 percentage points.

BY JIN MIN-JI [[email protected]]