IMF Raises South Korea's Growth Forecast to 3.3% in Second Straight Upgrade... Set to Outpace Global Average for First Time in Six Years

1.9% to 2.6% to 3.3%: Successive upward revisions
Semiconductor boom helps South Korea outpace global growth for the first time in six years

In its final forecast of the year, the International Monetary Fund (IMF) raised its projection for Korea's annual economic growth rate to 3.3%, up 0.7 percentage points from its previous forecast. Korea is expected to outpace the global average, including developing countries, for the first time in six years. With other major international organizations already forecasting growth in the 3% range, the IMF, widely regarded as the most authoritative, has now significantly raised its projection as well, providing a clear signal that the government's 3.0% forecast is within reach.

1.9%→2.6%→3.3%: A string of upgrades... Semiconductor boom lifts Korea above global average

Import and export cargo is piled high at the Sinseondae Terminal of Busan Port. Yonhap News

In its October World Economic Outlook (WEO) report released on October 13, the IMF projected Korea's economic growth at 3.3%. After forecasting growth of 1.9% in its reports released in January and April this year, the IMF raised its projection to 2.6% in July and has now revised it upward again. It also projected next year's economic growth at 2.8%, up 0.3 percentage points from its previous forecast. The IMF identified Korea, along with Taiwan, as a key trading partner in AI hardware, and said the country is generating spillover effects for commodity-exporting nations and manufacturing hubs.

The IMF issues forecasts four times a year. In April and October, alongside its annual meetings, it releases its "main forecasts" for all member countries, while in January and July it issues "updated forecasts" for 30 major economies, including Korea. The IMF assessed that the global economy was holding up better than expected, supported by the spread of AI investment despite the prolonged war in the Middle East and trade tensions, and raised its global growth forecast by 0.1 percentage points from July to 3.1%. That figure is also below its 3.3% growth projection for Korea. Korea is expected to outpace global growth for the first time since 2020. During the COVID-19 pandemic crisis that year, Korea's economy contracted by 0.7%, compared with a 2.7% contraction globally. In each of the following five years, Korea's growth fell short of the global average.

The positive outlook for the Korean economy is also reflected in forecasts from other major international organizations and global investment banks (IBs). The ASEAN+3 Macroeconomic Research Office (AMRO) successively raised its growth forecast for Korea this year from 1.9% in April to 3.1% in July and 3.3% most recently. The Organisation for Economic Co-operation and Development (OECD) raised its projection from 1.7% in March to 2.6% in June and 3.7% in September, while the Asian Development Bank (ADB) forecast growth of 3.2% in September, following its July projection of 2.6%. According to the Korea Center for International Finance, the average forecast from eight major foreign IBs rose for six consecutive months, starting at 2.4% in April and reaching 3.5% in September. The average included an especially bold projection of 4.0% from JPMorgan.

OECD and others join upgrade rally as Korea ranks second globally in current account surplus... Inflation pressures and K-shaped polarization cast a shadow

The forecasts have been raised across the board on the back of a remarkable export boom led by semiconductors and supportive macroeconomic indicators. According to balance of payments statistics from the Bank of Korea, Korea's cumulative current account surplus through August this year reached $279.2 billion (provisional), nearly four times the $69.67 billion recorded in the same period last year. It is currently the world's second-largest, after China. Exports exceeded $100 billion for three consecutive months, while in August, exports of IT products, led by semiconductors, surged 162% year on year, driving the overall goods account surplus. Thanks to the unprecedented semiconductor boom, the government's 3.0% economic growth forecast, presented in its second-half economic growth strategy, is now highly likely to be achieved.

However, behind the rosy outlook lie inflationary pressures and the shadow of "K-shaped polarization." The IMF projected global inflation at 4.7% this year, assuming that logistics conditions will return to prewar levels around October next year. It has stopped raising its forecast, after successive increases from 3.8% in January to 4.4% in April and 4.7% in July, but still expects inflation to remain high. Korea is also not immune to inflationary pressures. In its October Economic Trends report, the Korea Development Institute (KDI) recently said, "Consumer prices edged down in September as the base effect related to telecommunications fees from the previous month faded, but underlying inflation is showing signs of accelerating as supply-side pressures intensify." It noted that inflation excluding the effect of telecommunications fees actually rose to 3.1% from 2.7% the previous month. Analysts also continue to warn that K-shaped polarization is worsening, as the benefits of growth are concentrated in some semiconductor companies and large corporations, while the perceived economic conditions of small and medium-sized businesses, self-employed people, and young people facing the twin burdens of high prices and sluggish domestic demand remain stagnant. 

The Ministry of Economy and Finance said, "The prolonged war in the Middle East and rising prices and interest rates continue to weigh on people's livelihoods," adding, "Structural problems such as polarization and a slowdown in potential growth also persist. The government will therefore make every effort to ease polarization, stabilize people's livelihoods, and boost potential growth, including by pursuing three key social policies on housing, jobs, and financial services for ordinary people·." 

This content was produced with the assistance of AI translation services.