IMF Raises Korea Growth Forecast to 3.3%

IMF’s Upward Forecast for the Korean Economy (PG) The International Monetary Fund (IMF) has revised its economic growth forecast for South Korea this year upward by 0.7%p in three months. This is interpreted as the view that the growth rate will increase due to strong semiconductor exports, despite the negative impact of the Middle East war. The Ministry of Finance and Economy stated that the IMF forecasted South Korea’s real Gross Domestic Product (GDP) growth rate for this year at 3.3% in its October World Economic Outlook released on Oct. 13. In the report, the IMF explained the background of the upward revision of South Korea’s growth forecast, stating, “Strong external demand for semiconductors will offset the negative impact of the war and support South Korea’s growth momentum.” The IMF releases economic forecasts for all member countries every year in April and October, and revised forecasts for 30 major countries in January and July. The growth forecast for South Korea this year released by the IMF last July was 2.6%. The extent of this upward revision exceeds both the global average (+0.1%p) and the advanced economies average (+0.4%p). The Ministry of Finance and Economy reported, “It is evaluated as the effect of South Korea’s strong exports related to artificial intelligence (AI) hardware and semiconductors.” The IMF also pointed out South Korea and Taiwan as key trading nations for AI-related computer hardware in its report. The analysis is that the two economies account for 62% of the net trade in AI-related computer hardware. Considering such a supply chain structure, the IMF diagnosed that spillover effects could also appear in raw material exporting countries and manufacturing hub countries in East Asia. Deputy Prime Minister and Minister of Finance and Economy Lee Hyung-il stated on X (formerly Twitter), “If our country grows by 3.3% as the IMF forecasts, it will exceed the global economic growth rate (forecasted at 3.1%), which will be a meaningful achievement for the first time in 16 years since 2010, excluding 2020 when COVID-19 broke out.” The new growth forecast for this year released by the IMF this time is higher than those of the government (3.0%), the Bank of Korea (3.3%), the Korea Development Institute (KDI, 3.2%), and the Asian Development Bank (ADB, 3.2%), and lower than those of the Organization for Economic Cooperation and Development (OECD, 3.7%) and Moody’s (3.5%). The IMF also raised South Korea’s growth forecast for next year by 0.3%p, from the previous 2.5% to 2.8%. This level is higher than the forecasts of the government and KDI (both 2.2%), ADB (2.3%), and OECD (2.6%), and lower than that of the Bank of Korea (2.9%). According to the data provided by the IMF on October 13, South Korea’s GDP per capita is expected to reach the level of $43,512 this year, exceeding $40,000 for the first time in history. This projects an increase of $7,104 (19.5%) from last year’s estimate ($36,408). It was subsequently forecasted to increase to $49,277 in 2027, $52,100 in 2028, $54,604 in 2029, $57,112 in 2030, and $59,919 in 2031. According to the IMF’s prediction, South Korea will slightly trail Taiwan ($43,951) this year, but will overtake Taiwan by a margin of about $1,863 next year. The IMF anticipated that South Korea would maintain the upper hand thereafter until Taiwan catches up with South Korea again in 2030. Until last year, Japan’s GDP per capita was marginally higher than South Korea’s, but it was forecasted that South Korea would lead by a margin of $8,112 this year. The IMF’s observation is that it will maintain a higher level than Japan until 2031. It forecasted that South Korea’s nominal GDP will be $2,245.8 billion this year, surpassing $2 trillion for the first time, and will increase to $2,539.5 billion next year. It was projected to reach $2,681.3 billion in 2028, $2,805.8 billion in 2029, $2,930.7 billion in 2030, and $3,069.3 billion in 2031. Meanwhile, the IMF revised its global economic growth forecast for this year upward by 0.1%p from 3.0% to 3.1%, and maintained the forecast for next year at 3.4%, the same as in July. The IMF diagnosed that the growth path of each country will be differentiated depending on the degree of exposure to the Middle East war and the level of participation in the AI technology value chain.