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The Organisation for Economic Co-operation and Development (OECD) has revised its forecast for South Korea’s economic growth in 2024 to 2.6%, an increase of 0.4 percentage points from its earlier forecast. The increase reflects a faster-than-expected recovery in exports.
 
The OECD’s Economic Outlook report, released Thursday, states that South Korea’s GDP growth is “projected to strengthen from 1.3% in 2023 to 2.6% in 2024 and 2.2% in 2025.” This is nearly a half-point increase from the earlier forecast that the OECD released in its mid-year forecast in February, which estimated a 2.2% growth.
 
The OECD focused particularly on South Korea’s exports. “Rebounding global demand, notably for semiconductors, will push up exports in 2024,” the report said. In November 2023, the OECD forecast a 4.0% year-on-year increase in 2024 South Korean exports, but this time it sharply raised its forecast to 5.5%, demonstrating how the OECD expects the faster-than-expected export recovery to drive South Korea’s economic growth.
 
A key official from Korea’s Ministry of Economy and Finance said, “The OECD revised its forecast in response to the Bank of Korea’s advance estimate released on April 25, which announced that South Korea’s GDP grew by 1.3% in the first quarter.”
 
Unlike exports, which are recovering quickly, the sluggish domestic market is expected to rebound later this year, according to the OECD. This expectation rides on the assumption that the inflation rate will be close to the low 2% range by the end of 2024 and that the Bank of Korea will cut its key interest rate in the second half of the year.
 
However, some reports state that, even if the Bank of Korea cuts the key interest rate in the second half of the year, it will be difficult to see a significant rebound in domestic demand from the end of the year.
 
The Korea Development Institute (KDI) also released a report on Thursday analyzing that the effect of a change in the policy rate (key interest rate) is not fully realized until at least three to four quarters have passed.
 
The KDI analyzed macroeconomic data over the past decade and found that a 1-point cut in the key interest rate increased private consumption and capital investment by up to 0.7 percentage points and 2.9 percentage points, respectively, after three quarters. A rate cut at the end of the year would mean that the full effect of stimulating domestic demand would not be felt until September 2025.
 
Meanwhile, OECD raised its forecast for global economic growth in 2024 to 3.1%, up 0.2 percentage points from its previous forecast, noting that there are “some signs that the global outlook has started to brighten, even though growth remains modest.” It also raised its forecast for US economic growth in 2024 to 2.6% from 2.1%, as well as raising its forecast for China to 4.9% from 4.7%.

By Ahn Tae-ho, staff reporter

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