The International Monetary Fund has raised its growth forecast for South Korea this year to 2.6%, an upward revision of 0.7 percentage points — the largest upgrade among the 30 major economies covered in the latest update. Strong exports of semiconductors and AI hardware were credited with offsetting the negative effects of the Middle East war and driving the country's economic expansion.

The IMF trimmed its global growth forecast by 0.1 percentage point from its April projection to 3.0%, citing supply shocks stemming from the Middle East war.

Containers stacked at Pyeongtaek Port in Gyeonggi Province. [Yonhap]
Containers stacked at Pyeongtaek Port in Gyeonggi Province. [Yonhap]

The Ministry of Finance and Economy said Wednesday that the IMF's July World Economic Outlook Update set South Korea's growth forecast at 2.6% for this year and 2.5% for next year — up 0.7 percentage point and 0.4 percentage point, respectively, from the April projections.

The IMF identified South Korea, alongside Taiwan, Thailand and Malaysia, as one of the top four net exporters of AI hardware. It said robust semiconductor and AI hardware exports drove growth despite the country's heavy dependence on Middle Eastern energy imports, noting that South Korea's first-quarter growth came in at an annualized, seasonally adjusted rate of 7.5% — far exceeding the 1.8% the fund had projected in April.

The ministry said the upward revision for this year was the largest among the 30 major economies in the update, and that South Korea's projected growth rates for both this year and next year were the highest among the advanced economies covered. The simultaneous upgrade of next year's forecast suggests the growth momentum from semiconductors and AI is likely to carry into 2027, it added.

The ministry said it would focus on stabilizing prices, supporting employment in vulnerable sectors and narrowing inequality, while also pursuing the AI and green transition and advancing structural reforms to the economy and society, even as geopolitical risks persist abroad and household hardships continue at home.

The IMF set global growth for this year at 3.0%, down 0.1 percentage point from its April forecast, saying the world economy is being pulled in opposite directions by supply shocks from the Middle East war and an AI-driven technology cycle.

The fund raised its global growth forecast for next year by 0.2 percentage point from April to 3.4%. The projections assume that disruptions to Strait of Hormuz transit will ease from mid-July and that energy supply and logistics conditions will recover to pre-war levels around March next year.

Growth across 41 advanced economies was revised down 0.1 percentage point to 1.7% for this year. The United States held steady at 2.3%, while the eurozone was cut 0.2 percentage point to 0.9% and Japan was trimmed 0.1 percentage point to 0.6%.

Growth across 155 emerging market and developing economies was projected at 3.8%, down 0.1 percentage point from April. China was revised up 0.2 percentage point to 4.6%, reflecting strong advanced manufacturing and exports, though weak domestic demand and structural headwinds remain persistent drags.

Global inflation for this year was forecast at 4.7%, up 0.3 percentage point from April, driven by higher energy and food prices. Advanced economies were projected at 3.0% and emerging markets at 5.8%, with the IMF expecting core inflation in major economies to converge gradually toward target levels.

The IMF said the balance of risks to the global economy had become somewhat more even since April but that downside risks still predominate. It identified uncertainty over the Middle East situation, trade fragmentation and weakening policy space in some countries as the main risk factors. It also said AI could contribute to growth through efficiency gains, but that if expectations sour, it could become a downside risk by dampening consumption and financial conditions.

In response, the fund recommended prioritizing price stability in monetary policy, providing temporary and targeted fiscal support focused on vulnerable groups, strengthening energy security, building resilience, and pursuing international cooperation to restore trade norms.


y2k@heraldcorp.com