The International Monetary Fund sharply raised its growth forecast for South Korea's economy this year to 3.3%. The upgrade follows a 0.7 percentage point increase to 2.6% in July, marking a second raise of the same size in just three months. The IMF judged that semiconductor exports, buoyed by the artificial intelligence boom, would drive growth despite higher energy prices stemming from the prolonged war in the Middle East.
In its October World Economic Outlook released on the 13th, the IMF projected South Korea's real gross domestic product growth at 3.3% for this year. The figure represents another 0.7 percentage point upgrade after the fund lifted its April projection of 1.9% to 2.6% in July. The forecast for next year was also raised by 0.3 percentage point to 2.8% from 2.5%.
Korea's growth forecast for this year exceeded both the global average of 3.1% and the advanced-economy average of 2.1%. It also topped projections for the United States at 2.3%, the eurozone at 1.1%, Japan at 0.7% and the United Kingdom at 1.3%. The scale of Korea's upgrade, at 0.7 percentage point, was seven times the 0.1 percentage point increase in the global growth forecast.
Strong external demand centered on semiconductors is the main reason behind the upgrade. The IMF assessed that robust chip exports, which outweigh the negative impact of the Middle East war, are underpinning growth in the Korean economy. It singled out South Korea and Taiwan as key trading partners for AI hardware, and said the effects could spill over to commodity exporters and manufacturing hubs.
The global economy is also expected to maintain better-than-expected momentum on the back of expanding AI investment. The IMF forecast global growth at 3.1% this year, 0.1 percentage point higher than in July. It kept next year's projection at 3.4%.
Still, the fund said growth will diverge across countries depending on their exposure to the Middle East war and their involvement in AI supply chains. It lowered its growth forecast for emerging and developing economies to 3.7% from 3.8%, and cut China's to 4.5% from 4.6%. The Middle East and Central Asia region is expected to contract by 0.3% this year because of disruptions to energy exports.
Price instability caused by the prolonged Middle East war remains a risk factor. The IMF kept its forecast for global inflation this year at 4.7%. The outlook assumes the Strait of Hormuz reopens in November and that energy supplies and logistics normalize in February next year.
Warning of commodity price volatility and a renewed spread of trade friction, the IMF recommended that governments strengthen fiscal soundness, provide targeted support focused on vulnerable groups, and pursue monetary policy that prioritizes price stability.
The Ministry of Economy and Finance said, "The prolonged war in the Middle East and rising prices and interest rates continue to weigh on household livelihoods, and structural problems such as polarization and slowing potential growth also persist." It added, "The government plans to make every effort to ease polarization, stabilize livelihoods and revive potential growth, including by pushing forward three core social policies on housing, jobs and financial support for low- and middle-income households."