South Korea raises its economic growth outlook for 2022 to 3.1%

South Korea’s finance ministry revised its 2022 growth outlook for the country’s economy to 3.1% on Monday, saying exports and private spending are likely to gain ground despite heightened economic uncertainty.

The government’s latest projection is higher than the 3 percent growth forecast made in June, according to the Economy and Finance Ministry.

The ministry’s outlook is more optimistic than the Bank of Korea (BOK) and Organization for Economic Co-operation and Development (OECD) growth estimates of 3%. The International Monetary Fund expects South Korea’s economy to grow 3.3% next year.

The government lowered this year’s forecast for economic growth to 4 percent from 4.2 percent.

“The South Korean economy is expected to extend its recovery momentum over the next year. Domestic demand and exports are likely to show balanced growth, helping the economy to return to normal more quickly,” the chief said. Deputy Minister of Finance, Lee Eog-weon. during a press briefing on Friday.

Asia’s fourth-largest economy is on the path to recovery thanks to robust exports of chips and automobiles. But it faces growing downside risks as the latest upsurge in COVID-19 cases and the spread of the omicron variant casts a cloud over the recovery in private spending.

The country has been grappling with the surge in viral infections since it eased virus restrictions in November under the “living with COVID-19” program. Health officials reimposed stricter antivirus measures on Saturday to contain the pandemic.

South Korea added 5,318 more cases of COVID-19 on Monday, bringing the total to 570,414. The number of omicron infections remained at 178.

Despite the raging pandemic, the ministry expects private spending to rise 3.8% next year after its estimated growth of 3.5% this year.

The pick-up in private spending will be evident next year on improving consumer sentiment and efforts to gradually return to normal life, but virus situations will remain a major risk factor, he said.

To support domestic demand, the government plans to expand tax incentives for credit card use and expand coupon programs to support consumer spending.

The government will also organize a special travel week in the first half of the year and offer discount programs on transportation, accommodation and theme parks.

The country plans to abolish the limit on the purchase of tax-free items of $ 5,000 for outgoing travelers of Korean nationality. The removal comes three years after the government raised the threshold to $ 3,000 in 2019.

On the export side, the government expects overseas shipments to remain robust next year, although the pace of growth will slow due to the base effect.

Overseas shipments, which account for half of the country’s economy, are expected to increase by 2% next year, slowing from the estimated growth of 25.2% this year.

Regarding inflation, the ministry has sharply revised upwards its outlook for 2022 to 2.2% compared to its previous estimate of 1.4%. The government’s inflation forecast for 2021 has also been raised to 2.4% from 1.8%.

The government’s inflation forecast for 2021 and 2022 is higher than the BOK’s projections by 2.3% and 2%, respectively.

South Korea faces a build-up of inflationary pressures due in large part to high oil and agricultural prices and economic recovery.

The country’s consumer prices rose 3.7% in November from a year ago, the fastest annual gain in a decade and accelerating from a 3.2% increase in October . The BOK aims to keep annual inflation at 2% over the medium term.

On the supply side, upward pressure on energy costs and agricultural commodity prices may ease, but uncertainty over global supply chain bottlenecks persists, said the Ministry.

“In line with the recovery in domestic demand, demand pressure is expected to increase. While demand for in-person services is expected to rebound rapidly, growth in prices for personal services is likely to accelerate,” he added. .

The ministry said the country plans to freeze electricity and gas bills in the first quarter in a bid to ease inflationary pressures.

The government has said it will redouble efforts to support small-scale traders hit hard by the pandemic and strengthen the social safety net to tackle deepening social polarization.

The country plans to quickly compensate traders who have suffered trade losses due to the state’s anti-virus measures. The government will set aside 3.2 trillion won ($ 2.7 billion) in the loss compensation program budget for next year. (Yonhap)

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