Editorial: IMF’s downward revision for Korean economy is a wake-up call

2023.07.26 10:23:02 | 2023.07.26 12:27:53

[Image source: Gettyimagesbank]이미지 확대

[Image source: Gettyimagesbank]

South Korea’s second-quarter economic growth rate turned out to be better than expected. While it is heartening to see signs of recovery, it is too early to be at ease as international financial institutions continue to lower their projections for Korea’s economic growth rate.

The Bank of Korea on Tuesday announced that the country’s second-quarter gross domestic product (GDP) grew by 0.6 percent from the previous quarter, exceeding market expectations of 0.5 percent.

However, a significant portion of GDP growth is attributed to a decline in imports (-4.2 percent), which could be interpreted as “recessionary growth.”

Exports showed a decline of 1.8 percent, private consumption 0.1 percent, and facility investment 0.2 percent. Private consumption, in particular, which led the first-quarter growth, also turned negative.

It is challenging to guarantee a recovery in the third quarter, with the prolonged monsoon season causing flooding and soaring inflation.

The International Monetary Fund (IMF) also presented its July global economic outlook and projected Korea’s economic growth rate for this year at 1.4 percent, which is down from its previous forecast of 1.5 percent in April.

It is the fifth time that the IMF has revised down the growth forecast for Korea in one year since July last year.

Last week, Asian Development Bank (ADB) also forecast Korea’s economy to grow at 1.3 percent this year. The figure is a downgrade from its previous projection of 1.5 percent in April and is the lowest among others in Asia, including China (5.0 percent), Hong Kong (4.7percent), and Taiwan (1.5 percent).

Excessive pessimism is not desirable, but the weakening expectations for economic recovery in sectors such as chips require serious preparation and measures.

The government, which has been forecasting a recovery this year, needs to review its policies, considering the possibility of challenges in the second half.

Particularly, with the reopening effect of the Chinese economy, which accounts for nearly 20 percent of our exports, showing little impact on our country, measures to promote corporate investment and stimulate private consumption are essential.

If the IMF has revised upwards the growth projections for major export markets of Korean companies, such as the U.S. and Eurozone, then actively supporting exports through policy measures could lead to an export-led economic recovery in the second half.

Another approach could be incorporating bold measures in the tax reform plan that is expected to be announced soon, to encourage corporate investment.

By Editorial Team

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]