OECD sharply revises up S.Korea GDP forecast after strong Q1

The Organisation for Economic Co-operation and Development (OECD) forecasts South Korea’s economy to expand at a faster pace than it previously expected on the prospect of recoveries in consumer spending and investment later this year, alongside robust export growth led by semiconductor chips.

In its OECD Economic Outlook report released on Thursday, it projected South Korea’s gross domestic product (GDP) growth to accelerate to 2.6% in 2024 from the previous year’s 1.3% advance and moderate to 2.2% in 2025.

The forecast for 2024 is 0.4 percentage point higher than its earlier forecast of 2.2% unveiled in February. Its 2025 estimate is also 0.1 percentage point higher than its previous one.

The revised forecast is above the government’s projection of 2.2% and the Bank of Korea’s 2.1%. It follows GDP growth of 1.3% in the first quarter of this year from the preceding three months, the sharpest quarterly expansion since the fourth quarter of 2021.

“Rebounding global demand, notably for semiconductors, will push up exports in 2024. Private consumption and investment are expected to rebound from late 2024 as interest rates start to decline,” the OCED said in the report.

The country’s policy rates have been kept unchanged at 3.5% since January 2023, maintaining their highest levels in more than 14 years.

The revised GDP growth forecast for 2024 marked the sharpest rate of change since the rich-country club bumped up its forecast for South Korea's economic growth by 0.5 percentage point for 2021.

It is the second steepest forecast change among the 20 countries with GDP per capita of over $ 20,000, after releasing a 0.5-percentage-point increase in its US GDP growth forecast on Thursday.

INFLATION

The OECD said that stronger global demand for computer chips remains a major driver of South Korea’s economic growth.

Its inflation is projected to remain around 3% in the short term with increased energy and food prices. 

It forecasts inflation of the world’s 11th largest economy to ease to 2.6% in 2024, slightly lower than its previous projection of 2.7%, compared to the 3.6% gain in 2023. Its 2025 inflation forecast for South Korea remains unchanged at 2.0%.

The revised forecast for South Korea's 2024 GDP growth of 2.6%, on par with that of the US, is the fourth highest after 3.6% for Costa Rica, 3.4% for Turkey and 2.9% for Poland.

The 2025 forecast of 2.2% is the highest among the group of 20 countries with over $20,000 GPD per capita and on par with that of Australia.

The new projections are in line with the Economic Outlook's revision to its 2024 world economic growth forecast to 3.1% from 2.9%.

China’s GDP growth forecast was lifted to 4.9% for 2024 from the previous 4.7%. By contrast, the OECD cut its Japan’s economic growth forecast to 0.5% from 1.0%.

To tackle the world’s lowest birth rate and rapidly aging population, it advised South Korea to strengthen family-friendly policies and allow more immigrants to enter the country.

Write to Kyung-Min Kang and Se-Min Huh at Kkm1026@hankyung.com
Yeonhee Kim edited this article