IMF Warns Korea Could Suffer Chronic Low Growth

The International Monetary Fund has slashed Korea's economic growth outlook for the fifth time this year and now believes the country will suffer from chronic low growth like Japan.

If the prediction is correct, it will be the first year since the Asian financial crisis in 1998 that Korea's economy grows at a slower pace than Japan's. 

The IMF on Tuesday lowered its GDP growth outlook for Korea this year from 1.5 percent in April to 1.4 percent but raised the global outlook from 2.8 percent to three percent and Japan's growth forecast from 1.3 percent to 1.4 percent.

In January of this year, the IMF expected Japan's economy to grow 1.8 percent this year but then lowered it citing the impact of U.S. financial instability.

But it forecast that the island country will see a rebound as the effect of the bankruptcies of Silicon Valley Bank and Credit Suisse wanes and the tourism and service sectors revive after the end of the coronavirus pandemic. 

Chang Jae-chul at KB Kookmin Bank said, "Exports including semiconductors remain sluggish, while the effects of China's reopening are not as strong as expected, causing lackluster growth in Korea. In Japan it seems reviving tourism and service sectors buoyed by the weak yen were reflected." 

In April last year, the IMF forecast Korea's economy would grow 2.9 percent this year, but since then it has lowered its projection five times. But the latest outlook now matches the projections of the Korean government and Bank of Korea.

Despite the modest rise in global outlook, the IMF said the world economy "remains weak by historical standards. The rise in central bank policy rates to fight inflation continues to weigh on economic activity... In most economies, the priority remains achieving sustained disinflation while ensuring financial stability."