2023 inflation outlook remains unchanged at 3.9%
By Yi Whan-woo
The Organization for Economic Cooperation and Development (OECD) lowered its growth forecast for Korea next year to 1.8 percent, Wednesday, down from its previous outlooks of 2.2 percent in September and 2.5 percent in June.
The 2023 outlook for Asia's fourth-largest economy contrasts with a global economic growth forecast of 2.2 percent.
The Paris-headquartered OECD assessed that the protracted war in Ukraine triggered the worst energy crisis since the 1970s, which in turn, is pushing prices up while slowing down economies around the world.
It also assessed that rate hikes delivered by central banks worldwide pose risks, especially for emerging economies.
The organization said private spending in Korea has made a solid recovery, but can be weakened by a slowed growth of disposable incomes due to high inflation.
The OECD said Korea's exports could become more sluggish in the short term as the semiconductor industry might slow down due to a decline in global demand.
Correspondingly, the OECD slashed its 2022 growth forecast for Korea to 2.7 percent _ which is the same as the projection announced in June _ after slightly revising it up to 2.8 percent in September.
The OECD raised its global economic growth forecast to 3.1 percent from 3 percent two months earlier when it was slashed from 4.5 percent in June.
The OECD's outlook for Korea is slightly different from estimates by the International Monetary Fund (IMF), which forecast 2.6 percent economic growth in 2022 and a 2 percent expansion in 2023.
Concerning inflation, the OECD said hikes in utility fees and service costs will cause consumer prices in Korea to continue to rise before cooling down gradually.
The inflation outlook for Korea remained unchanged at 5.2 percent this year and 3.9 percent for 2023.
The inflation forecasts for the global economy were not given. For G20 economies, inflation is anticipated at 8.1 percent in 2022 and 6 percent in 2023.
The OECD added that possible corporate insolvencies and housing price adjustments, all affected by mounting repayment burdens shouldered by borrowers, can work as downside risks for spending and investment in Korea.
The organization recommended Korea to embrace monetary policy tightening so that it can "continue to re-anchor inflation expectations."
It assessed that fiscal consolidation should proceed, while proposed fiscal rules should be adopted by the National Assembly "to help reduce inflationary pressures and prepare for rapid population aging."
Concerning fiscal policy, the OECD noted it "should move from broad-based crisis support and energy price support toward targeting households and businesses vulnerable to rising living costs, and ensure that incentives for energy savings are enhanced."
In relation to the Yoon Suk-yeol government's regulatory overhaul, the OECD said, "Structural reforms should facilitate a reallocation of labor and capital to expanding sectors and strengthen competition to address productivity gaps between large and small companies."