Samsung Electronics Chairman Lee Jae-yong, center, inspects a chip production line at the company's plant in Cheonan, South Chungcheong Province, Feb. 17, 2023. Courtesy of Samsung Electronics

Korea's economic growth has resumed after overcoming a temporary slowdown caused by high global prices and sluggish exports following the end of the COVID-19 pandemic, the Organization for Economic Cooperation and Development (OECD) said, Thursday.

In its report, "OECD Economic Surveys: Korea 2024," the organization attributed the country's strengthened growth largely to the strong global demand for semiconductors.

The OECD also projected private consumption in Korea to recover starting in the second half of this year, despite high inflation and soaring interest rates.

Based on these assessments, the OECD maintained its growth outlook for Korea at 2.6 percent for this year, the same projection it made in May. At that time, the organization had notably revised the outlook up by 0.4 percentage point from its previous projection of 2.2 percent made in February.

Inflation in Korea was forecast at 2.5 percent, down 0.1 percentage point from the May projection.

"Growth has strengthened after a soft patch, largely reflecting the fortunes of semiconductor exports," the OECD said in the report.

The OECD releases the report every two years to grasp the economic trends of member states, analyze their policies and make recommendations.

SK hynix' M16 plant in Icheon, Gyeonggi Province / Courtesy of SK hynix

According to the organization, trade is a key driver of Korea's economic growth. In particular, semiconductor exports have accounted for much of the cyclical ups and downs in the wake of the pandemic crisis.

The OECD also noted that the private consumption is expected to gradually pick up going forward, with disinflation, interest rates having peaked and housing prices stabilizing.

Trade tensions between the United States and China — Korea's main trading partners — were cited as risks to be addressed.

"High supply chain dependencies on individual countries for some critical inputs are key risks to hedge," the organization said, suggesting that Korea's export-oriented growth model needs a decisive upgrade for sustainable development.

The OECD advised that the upgraded growth model should focus on increasing incomes by addressing productivity gaps, which are reflected in the labor market duality characterized by significant differences in pay, job quality and social protection.

The organization also emphasized the need for comprehensive family policies and support systems to let both mothers and fathers balance career and family life, as Korea continues to struggle with the lowest fertility rate in the world.

In this context, the OECD advised that Korea's fiscal policy needs to respond to the long-term pressures of rapid aging. The organization called for measures to help young people have the number of children they wish for.

Regarding efforts to reduce carbon emissions, the OECD suggested that allowing the market greater freedom to set prices through deregulation and tightening the emissions trading scheme is the most cost-effective way to achieve climate targets.