A supermarket in Seoul. (Yonhap)
The projection comes as Asia’s fourth-largest economy is seen as sliding towards stagflation, a condition in which rising inflation and shrinking economic growth coexist.
In its latest World Economic Outlook, the IMF predicts inflation of 4% in South Korea, a jump of 1.6% from October last year in what is also the second highest increase over the six-month period after New Zealand, which is expected to see prices jump 5.9% this year. Wellington’s October forecast was 2.2%.
The forecasts for the United States and European countries were 7.7% and an average of 5.5%, respectively.
Added to South Korea’s bleak economic outlook is its growth forecast this year, which the IMF has reduced this time to 2.5% from 3% in January.
“The economic damage from the conflict will contribute to a significant slowdown in global growth in 2022 and inflation,” the IMF said, referring to the war in Ukraine and adding that global growth will slow to 3.6% in 2022. and 2023, compared to 6.1% in 2021.
Finance Minister Hong Nam-ki, who said last December that the economy would grow 3.1% this year, admitted the growth projection was unattainable during a meeting with foreign correspondents this month .
Hong, who is also vice premier, added that the government should review the target once President-elect Yoon Suk-yeol takes office on May 10.
Rampant inflation combined with declining economic growth is expected to continue for the time being, and experts said the government should maintain price stability.
“We knew we would have to deal with these stagflation issues, so there’s nothing really new about the problem, which is largely external, like fuel costs,” Sung said. Tae-yoon, professor of economics at Yonsei University.
He said: “What we need right now is to maintain price stability and that is why a rate hike is inevitable. The hike would also prevent capital outflows from here to the United States or other advanced economies.
The Bank of Korea has already raised the benchmark rate three times this year, in January, February and just two weeks ago, to 1.5%.
But experts said the central bank needed to be more aggressive in raising borrowing costs further to curb inflation.
By Choi Si-young ([email protected])