Containers are stacked to be loaded on ships in a port in South Korea
The Organisation for Economic Co-operation and Development (OECD) forecasts South Korea’s economy to expand at a faster pace than it previously expected on the prospect of a recovery in consumer spending and investment later this year, alongside robust exports growth led by semiconductor chips.
In the OECD Economic Outlook report released on Thursday, it said South Korea’s gross domestic product (GDP) growth to accelerate to 2.6% in 2024 from the previous year’s 1.3% advance and moderate to 2.2% in 2025.
The projection for 2024 is 0.4 percentage point higher than its earlier forecast of 2.2% unveiled in February. Its 2025 forecast is also 0.1 percentage point higher than the previous one.
The revised forecast is above the government’s projection of 2.2% and the Bank of Korea’s 2.1%. It followed the GDP growth of 1.3% in the first quarter of this year from the preceding three months, the sharpest expansion since the fourth quarter of 2021.
“Rebounding global demand, notably for semiconductors, will push up exports in 2024. Private consumption and investment are expected to rebound from late 2024 as interest rates start to decline,” the OCED said in the report.
The country’s policy rates have been kept unchanged at 3.5% since January 2023, their highet level in more than 14 years.
The revised GDP growth forecast for 2024 marked the sharpest rate of change since the rich-country club bumped up its forecast for South Korea’s economic growth by a 0.5 percentage point for 2021.
It is also the second steepest rate of forecast change after the 0.5-percentage-point increase for its US GDP growth forecast released on Thursday among the group of 20 countries with GDP per capita of over $20,000.
Shoppers and tourists in the Myeong-dong shopping district
INFLATION
The OECD said that stronger global demand for computer chips remains a major driver of South Korea’s economic growth.
Its inflation is projected to stay at around 3% in the short term with increased energy and food prices.
It forecast inflation of the world’s 11th largest economy to ease to 2.6% in 2024, slightly lower than its previous projection of 2.7%, compared to the 3.6% gain in 2023. Its 2025 inflation forecast for South Korea remains unchanged at 2.0%.
Shoppers at a Hanaromart outlet in Yangjae-dong, Seoul
The revised forecast for South Korea’s 2024 GDP growth of 2.6% is the fourth highest after 3.6% for Costa Rica, 3.4% for Turkey and 2.9% for Poland and on par with that of the US.
The 2025 forecast of 2.2% is the highest among the group of 20 countries with GPD per capita of over $20,000 and on par with that for Australia.
The new projections are in line with its revision to the world’s economic growth forecast to 3.1% from 2.9%.
China’s GDP growth forecast was lifted to 4.9% for 2024 from the previous 4.7%. By contrast, the OECD cuts its Japan’s economic growth forecast to 0.5% from 1.0%.
To tackle the world’s lowest birth rate and rapily aging population, it advised South Korea to strengthen family-friendly policies and allow more immigrants to enter the country.
By Kyung-Min Kang and Se-Min Huh
Kkm1026@hankyung.com
Yeonhee Kim edited this article
