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OECD revises up S. Korea's 2024 growth outlook to 2.3 pct

By Yonhap

Published : Nov. 29, 2023 - 21:55

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Logo of the Organization for Economic Cooperation and Development (OECD) Logo of the Organization for Economic Cooperation and Development (OECD)

The Organization for Economic Cooperation and Development revised up the outlook for South Korea's economic growth next year to 2.3 percent on a recovery in exports and eased geopolitical tensions, Seoul's finance ministry said Wednesday.

The figure marked a 0.2 percentage-point increase from its projection of 2.1 percent made in September, according to the Ministry of Economy and Finance.

The latest outlook is rosier than those by the International Monetary Fund and the Bank of Korea, both of which presented a 2.2 percent growth for next year, while the South Korean government expected 2.4 percent growth in 2024.

The Paris-based organization, however, revised down the outlook for South Korea's economic growth for this year by 0.1 percentage point to 1.4 percent.

As for the global economy, the OECD maintained its earlier forecast of 2.7 percent expansion next year, while cutting the figure for this year to 2.9 percent from 3.0 percent.

"Stronger-than-expected global growth and easing geopolitical tensions would improve the economic outlook for the export-dependent Korean economy," the OECD said in its latest report provided by the ministry.

"Real GDP growth is projected to be 1.4 percent in 2013, strengthening to 2.3 percent in 2024 and 2.1 percent in 2025. Exports are to pick up with a recovery in semiconductor demand," the report read.

After a yearlong on-year decline, exports rose 5.1 percent on-year to US$55 billion in October on the back of rising chip sales in the global market. The government and experts have expected exports to bottom out and gradually recover.

"Elevated debt servicing burdens and inflation will continue to weigh on private consumption and investment in the short term, but demand should strengthen from the second half of 2024," the OECD said.

The organization put the annual inflation projection at 3.6 percent for this year and 2.7 percent for next year, up by 0.2 percentage point and 0.1 percentage point, respectively, from its earlier forecasts due to rising energy and food prices.

"The policy rate is assumed to remain at the current level until the second half of 2024, before being cut gradually to 2.5 percent by 2025 as inflation approaches the 2 percent target," the report showed.

The BOK has kept its benchmark interest rate unchanged at 3.5 percent since January 2023. It froze the rate six straight times, though the level is the highest since 2008.

The forecast for next year's inflation in South Korea comes far below the expected average inflation growth of 5.3 percent among OECD member nations. The organization put the forecast for 20 major global nations at 5.8 percent.

The OECD called on South Korea to push for measures to bolster fiscal soundness, given its rapid population aging.

"Against the backdrop of rapid population ageing, spending pressures are set to increase by approximately 5 percent of GDP by 2040 according to the OECD long-term model, driven by pensions and health expenditure. Fiscal consolidation is key to meet this challenge," the organization said.

It also stressed the need for the country to implement measures to boost female employment and fertility, such as increasing the take-up of parental leave and flexible working arrangements.

In South Korea, the total fertility rate -- the average number of children a woman bears in her lifetime -- came to a record low of 0.7 in the third quarter of 2023, down 0.1 from a year earlier, government data showed.

The OECD also called for efforts to lower productivity gaps between large and small firms, and reduce labor market dualism by extending support to smaller businesses. (Yonhap)