IMF downgrades Korea's growth forecast to 2.2% on sluggish domestic demand

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IMF downgrades Korea's growth forecast to 2.2% on sluggish domestic demand

Published: 20 Nov. 2024, 17:14

SHIN HA-NEE
[email protected]

Audio report: written by reporters, read by AI

International Monetary Fund (IMF) Mission Chief for Korea Rahul Anand speaks during a press conference held at the government complex in central Seoul on Wednesday. [MINISTRY OF ECONOMY AND FINANCE]

The International Monetary Fund (IMF) is now projecting the Korean economy to grow 2.2 percent this year and 2 percent next year, lowering both of its previous forecasts.

Warning of downside risks amid persisting uncertainties, it urged structural reform for Korea to address slowing growth potential and a shrinking population.

“Growth is expected to reach 2.2 percent in 2024, supported by strong semiconductor exports while partially offset by a weak recovery of domestic demand,” said Rahul Anand, IMF mission chief for Korea, during a press conference in central Seoul on Wednesday.

While noting that Korea’s inflation is projected to remain close to the 2 percent target range next year, Anand stressed that “uncertainties around the outlook remain high and the risks are tilted to the downside.”

Under Article IV of the Article of Agreement, the IMF annually dispatches its mission staff to monitor member countries’ economies. The IMF Article IV delegation, led by Anand, visited Korea from Nov. 7 to Wednesday for its annual consultation.

In its end-of-mission press release, the IMF projected Korea’s economy to grow 2.2 percent this year, lower than its prior forecast of 2.5 percent, and 2 percent next year, also down from the previously-expected 2.2 percent.

“Strong economic fundamentals and sound macroeconomic policies have helped the Korean economy navigate through multiple global shocks in recent years,” Anand told the local press.

“In recent years, economic growth has recovered, inflation has steadily declined and financial stability risks have decreased.”

The IMF identified Korea’s rapidly aging population as its key mid-term challenge, calling for structural reform to address the low productivity.

International Monetary Fund (IMF) Mission Chief for Korea Rahul Anand, fourth from left, during a press conference held at the government complex in central Seoul on Wednesday. [MINISTRY OF ECONOMY AND FINANCE]

"Comprehensive reforms are needed to tackle the declining labor force, including through alleviating economic constraints that hold back Korea's fertility rate, increasing female labor force participation and attracting foreign work talent,” said Anand.

The government’s budget proposal for next year, which prioritized fiscal soundness, is “appropriate,” noted the mission chief, but added that “more ambitious consolidation will be needed to create the space to meet significant long-term spending pressures.”

Anand also stressed that the authorities' “foreign exchange intervention should remain limited to preventing disorderly market situations.”

BY SHIN HA-NEE [[email protected]]