OECD Raises South Korea’s 2024 Economic Growth Forecast to 2.3 Percent

SEOUL – The Organization for Economic Cooperation and Development (OECD) has revised upward its forecast for South Korea's economic growth in 2024 to 2.3 percent, attributing the increase to a rebound in exports and easing geopolitical tensions. This announcement was made by Seoul's finance ministry on Wednesday.

According to Yonhap News Agency, this revision marks a 0.2 percentage point increase from the OECD's September projection of 2.1 percent. The updated forecast is more optimistic than the projections by the International Monetary Fund and the Bank of Korea, both estimating a 2.2 percent growth. However, it is slightly below the South Korean government's expectation of 2.4 percent growth for 2024.

Conversely, the OECD downgraded its growth outlook for South Korea's economy in the current year by 0.1 percentage point, setting it at 1.4 percent. For the global economy, the OECD maintained its forecast of a 2.7 percent expansion for the next year, while reducing the growth estimate for this year from 3.0 percent to 2.9 percent.

The OECD's report, shared by the ministry, noted that stronger global growth and reduced geopolitical tensions would likely benefit South Korea's export-driven economy. The report predicts that real GDP growth will reach 1.4 percent in 2023, rising to 2.3 percent in 2024 and 2.1 percent in 2025, with a significant pickup in semiconductor demand aiding exports.

After a year of decline, South Korea's exports increased by 5.1 percent to US$55 billion in October, driven by higher chip sales globally. The government and experts anticipate a gradual recovery in export levels.

The OECD also mentioned that high debt servicing burdens and inflation are expected to impact private consumption and investment in the short term. However, demand should strengthen from the second half of 2024.

Inflation projections for South Korea are set at 3.6 percent for this year and 2.7 percent for the next year, slightly higher than earlier estimates, due to increased energy and food prices. The policy interest rate is presumed to stay at the current level until the second half of 2024, before being gradually reduced to 2.5 percent by 2025 as inflation nears the 2 percent target.

The Bank of Korea has maintained its benchmark interest rate at 3.5 percent since January 2023, the highest level since 2008. South Korea's forecasted inflation for next year is considerably lower than the anticipated average of 5.3 percent among OECD member countries, and 5.8 percent for 20 major global economies.

Addressing South Korea's rapidly aging population, the OECD urged the country to implement measures to enhance fiscal stability. It highlighted that spending pressures, mainly due to pensions and healthcare, are expected to rise by about 5 percent of GDP by 2040. The OECD recommended fiscal consolidation to manage these challenges effectively.

Furthermore, the OECD emphasized the importance of measures to increase female employment and fertility rates, including promoting parental leave and flexible working arrangements. South Korea's total fertility rate reached a record low of 0.7 in the third quarter of 2023.

The OECD also advised efforts to diminish productivity gaps between large and small firms and to reduce labor market dualism by extending support to smaller businesses.

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