OECD: Korean Economy will Grow 2.3% in 2024
- OECD Economic Outlook, November 2023-
The Organization for Economic Cooperation and Development (OECD) announced its Economic Outlook on November 29. The key messages of the report are as follows.
[Global Economic Outlook – Restoring Growth]
With the prediction of a mild slowdown in global economic growth, the OECD has forecasted a subdued recovery due to higher interest rates; however, a gradual easing of monetary policy from the latter half of the year is projected to lead global economic growth to a modest improvement. Meanwhile, since inflation is expected to slow down as a result of monetary tightening and falling energy prices, barring further shocks, most countries are expected to return to their inflation targets by 2025.
Therefore, the forecast for global economic growth in 2023 has been revised to 2.9% (down by 0.1 percentage points from the September forecast). Growth for 2024 is expected to moderate to 2.7% (same as projected in September) with a slight increase to 3.0% in 2025. Based on the G20 countries, inflation rates are anticipated to gradually decrease to 6.2% in 2023 (up by 0.2 percentage points), further decline to 5.8% in 2024 (up by 1.0 percentage points), and stabilize at 3.0% by 2025.
[Economic Outlook for Korea]
The outlook for the Korean economy indicates a slowdown to 1.4% in 2023 (down by 0.1 percentage points from the September forecast), followed by a rebound to 2.3% in 2024 (up by 0.2 percentage points), and then 2.1% in 2025. With regard to domestic consumption, while the elevated debt servicing burdens and rising prices would weigh on consumption and investment in the near term, it is projected to be strengthened as approaching the second half of next year. As for exports, the report assessed that its signs of recovery have been expanded on the back of rebounding semiconductor demand, suggesting that the recovery momentum in exports should strengthen further going forward.
Korea's inflation rate is anticipated to moderate to 3.6% in 2023 (up by 0.2 percentage points from the September forecast) and then decrease to 2.7% in 2024 (up by 0.1 percentage points). Factors such as energy and food prices might pose burdens; however, with the continued drop in inflation rates, the OECD viewed that the country could approach the target rate of 2% by 2025.
The downside risks for the Korean economy include concerns about increased debt servicing burdens due to rising global bond rates and potential supply chain disruptions amid escalated geopolitical tensions. Meanwhile, the upside risks presented are a stronger-than-expected global economic growth and an easing of geopolitical tensions.
[Policy recommendations for Korea]
The OECD noted that fiscal consolidation such as the implementation of fiscal rules is key to address the rapid aging population and an increase in spending pressures in pensions and healthcare sectors.
As for a temporary fuel tax cut, it stressed the necessity for a selective support measures targeting vulnerable groups more directly. Reform on product market regulations and devising better support measures for SMEs are recommended to narrow productivity gaps between large and small firms and reduce labor market dualism. In addition, the report highlighted the importance of polices that focus on reconciling career and family and provision of incentives for energy savings.
[Upward Revision of Korea’s growth in 2024: Implications and Assessment]
(1) Global economic growth for 2024 remains unchanged (2.7%), while that of Korea has been revised upward (2.1% → 2.3%).
Adjustments to the global and Korean economic outlook for 2024 have been generally aligned in a similar direction thus far. However, in this report, while the global economic forecast remained constant, that of Korea has been raised. This adjustment is attributed to two main factors. ① As China, Korea’s major trading partner, has shown a more positive outlook in its recent economic indicators compared to market concerns, its growth rate has seen an upward adjustment from 4.6% to 4.7%. ② The recent recovery in the semiconductor and IT industries, along with expectations for their future growth, has been factored in.
(2) 2024 growth rates for major countries are projected to decrease compared to this year’s, while the Korean economy is deemed to see a substantial improvement (1.4% → 2.3%).
With the anticipation on the bottoming-out exports amid global trade recovery (1.1% → 2.7%), countries with high reliance on manufacturing and exports, such as Germany (- 0.1% → 0.6%) and the Netherlands (0.2% → 0.5%) in addition to Korea, are also forecasted to experience an increase in growth rates for next year compared to that of current year. However, service economies including the United States (2.4% → 1.5%), France (0.9% → 0.8%), and Spain (2.4% → 1.4%) are expected to see a growth slowdown compared to this year.
(3) 2024 inflation outlook for Korea is relatively favorable compared globally (2.7%).
The estimated inflation rate for Korea in 2024, at 2.7%, significantly falls below the average of major 20 countries (5.8%) and the OECD (5.3%), positioning it as the seventh lowest among the 38 member states of the OECD.
Should further information on the OECD Economic Outlook for Korea be required, please refer to the attached.
