The ASEAN+3 (Korea, China, Japan) regional macroeconomic research organization (AMRO) projected South Korea's economic growth rate at 1.6% for this year. This is a decrease of 0.3 percentage points (p) from the forecast three months ago (1.9%). This reflects the impact of the U.S. government's tariff imposition among other negative factors.
According to the Ministry of Economy and Finance on the 21st, AMRO released the '2024 South Korea Annual Consultation Report' that day.
AMRO expected that South Korea's domestic demand would recover this year, but due to the effects of the U.S. government's tariff imposition and other factors, it lowered the economic growth rate to 1.6%, which is 0.4%p lower than last year. This is a reduction of 0.3%p from the forecast made in December last year, which was 1.9%.
Recently, international organizations have been lowering their projections for South Korea's economic growth rate across the board. The Organisation for Economic Co-operation and Development (OECD) also revised its growth rate forecast for South Korea down to 1.5% from 2.1% in December last year on the 17th.
AMRO pointed to the downside risks for South Korea's growth, which include the sudden slowdown of major economies such as the U.S., Europe, and China; deterioration of exports due to a sharp increase in U.S. tariffs; and weakened corporate and consumer sentiment that could be triggered by the political uncertainties following last year's declaration of martial law. The ongoing impact of the COVID-19 pandemic, the liability repayment capacity of small and medium-sized enterprises, small business owners and the self-employed, as well as the real estate project financing held by non-bank financial institutions were also cited as risk factors.
AMRO projected that South Korea's inflation rate would be 1.9% this year, slowing down by 0.4%p compared to last year. This expectation is based on the stabilization of domestic food prices and a decline in global energy prices. Upside risks for prices include the deepening of geopolitical conflicts in the Middle East and Ukraine, rising energy and food prices due to extreme weather, and adjustments in fuel taxes and electricity rates.
AMRO stated regarding South Korea's macroeconomic policy, 'It should be readjusted to support growth while maintaining financial stability,' and added, 'Given that price stability is expected to continue in the short term, the currency tightening policy should be continuously relaxed to support domestic demand.'
It also noted, 'While maintaining strict collateral recognition ratios for debtors with properties in speculative areas or owning multiple dwellings, we should consider normalizing collateral recognition ratios for first-time home buyers to support genuine housing demand,' and emphasized the need to strengthen fiscal discipline through legislation of fiscal rules while ensuring the sustainability of finance through revenue expansion and expenditure efficiency in an uncertain economic environment.
Moreover, AMRO highlighted the importance of enhancing resilience and dynamism in the manufacturing sector, responding to demographic changes including increasing birth rates, and addressing structural issues such as pension and health insurance reform.
Meanwhile, AMRO is an international organization that analyzes and reviews the economic trends of ASEAN+3 and supports the economic and financial stability of member countries. This report was prepared based on the annual consultation held last November when the AMRO mission visited South Korea to meet with the Ministry of Economy and Finance and the Bank of Korea.