In its Interim Economic Outlook released on the 26th, the Organization for Economic Cooperation and Development (OECD) lowered this year's growth forecast for Korea by 0.4 percentage points to 1.7% from 2.1%. The size of the downgrade was the second largest among the Group of 20, after the United Kingdom (0.5 percentage point). The OECD analyzed that because of the Middle East crisis, prices in Asian countries with a high dependence on crude oil imports will rise sharply and corporations' production costs will increase, negatively affecting the economy.
◇ Held global growth outlook steady, but sharply downgraded Korea
Since the Middle East crisis began last month, the OECD is the first international organization to release economic forecasts for major countries. Previously, in its economic outlook late last year, the OECD projected that Korea's growth rate would be 2.1% this year and next year, and 2.0% the year after. This year's growth forecast was higher than those of the Korean government and the Bank of Korea (2.0%). However, in the revised outlook released three months later, reflecting the Middle East crisis, it lowered this year's forecast by 0.4 percentage points and kept the projections for next year and the year after unchanged. The OECD raised its forecast for Korea's consumer price inflation this year to 2.7% from 1.8%. It kept next year at 2.0%.
The OECD kept this year's global growth outlook at 2.9%. It had intended to raise the forecast as the global economy recovered more than expected, but it anticipated that the recovery effect would be offset by the Middle East crisis. It projected next year's growth at 3.0%, expecting the economy to move into a recovery phase as the shock from the Middle East fades. For the Group of 20 (G20), it raised this year's growth forecast to 3.0% from 2.9%, but lowered next year's to 3.0% from 3.1%. For the United States, it was revised up to 2.0% from 1.7% this year, but lowered to 1.7% from 1.9% next year, indicating that the growth momentum is expected to weaken.
◇ Japan, with high dependence on crude oil imports, keeps outlook steady... "Seems to reflect domestic demand recovery in the fourth quarter of last year"
The OECD kept Japan's and China's growth forecasts for this year and next. Earlier, it projected Japan to grow 0.9% this year and next, and China to grow 4.4% this year and 4.3% next year. For the eurozone, it lowered this year's forecast to 0.8% from 1.2% and next year's to 1.2% from 1.4%.
Regarding the OECD keeping Japan's growth outlook unchanged despite a dependence on crude oil imports similar to Korea's, a government official said, "Japan appears to have maintained its growth forecast because, thanks to the government's expansionary fiscal policy, private consumption recovered faster than expected from the fourth quarter of last year, despite concerns about rising energy expenses."
The OECD recommended, "To respond appropriately to the current crisis, government policies must be timely, target the households and corporations most in need, and provide incentives for energy savings." The Ministry of Economy and Finance said, "We will implement a war-related supplementary budget of around 25 trillion won as quickly as possible in April using excess tax revenues to begin a full-fledged response to the crisis."