IMF Predicts Korean Economy to Grow 2.2% in 2024, Reaching 2% Price Stability Target at the End of 2024
The International Monetary Fund (IMF) released the 2023 Article IV Staff Reports for Korea on November 17.
In the report, the IMF expected the Korean economy to gradually recover from the second half of the year, thanks to the rebound of semiconductor exports and tourism industry, projecting a growth rate of 1.4% for 2023. As the growth momentum is anticipated to continue into the next year, growth rate for 2024 was forecast to reach 2.2%. Inflation was predicted to continue to moderate, with an estimation of 3.6% in 2023 and 2.4% in 2024, approaching the 2% target rate at the end of 2024. Although Korea’s current account surplus was narrowed to 1.3% of GDP in 2023 due to weak demand from major trading partners, the report expected a gradual improvement to around 4.0% of GDP in the medium-and long-term.
The IMF assessed that the Korean government’s policy directions mostly accord with the IMF’s policy recommendations. It positively viewed the government’s efforts towards fiscal normalization, including the budget proposal for 2024 and the introduction of fiscal rules, advising that such efforts should stay the course to ensure fiscal consolidation. To be specific, the IMF recognized that the fiscal rules appropriately established indicators and limits, which it viewed will assist in managing Korea’s public finance in response to its long-term challenges such as rapidly aging population.
Furthermore, the IMF recommended that the current high interest rate stance be maintained for a considerable period to achieve price stability, recognizing Korea’s current monetary policy as being pursued in an appropriate direction.
Korea’s foreign exchange reserves proved to be capable of fighting external shocks, according to the stress testing results (qualitative assessment) conducted by the IMF. With regard to the finance sector, given the adequate financial asset holdings by households and corporates, along with the government’s stringent macro-prudential regulations, the likelihood of risks to emerge in the overall financial market was low.
The IMF also advised in the report that efforts for structural reform should be sustained in order to boost the nation’s potential growth rates and address demographic changes; increase the nation’s productivity by implementing more flexible employment-related systems and reduce gender gaps in the labor market; pension reform should be undertaken in a balanced manner in consideration of both medium-and long-term fiscal soundness and the high elderly poverty rate.
More details about the report are available on the following: http://www.imf.org
Please refer to the attached files.