SEOUL, April 17 (AJP) -The International Monetary Fund on Thursday maintained its growth outlook for South Korea at 1.9 percent for this year, holding steady from its January projection as it pointed to “sufficient buffers” to withstand energy shocks stemming from the Gulf conflict.
The assessment came as the war-driven surge in oil and gas prices adds a fresh layer of uncertainty to the global economy, with Asia seen as particularly exposed due to its heavy reliance on imported energy.
“Asia is significantly exposed to the energy shock,” Krishna Srinivasan, director of the IMF’s Asia and Pacific Department, said during a regional outlook briefing in Washington. “The scale and persistence of the shock remain uncertain.”
The IMF expects regional growth to slow from 5.0 percent last year to 4.4 percent in 2026, while inflation is projected to rise from 1.4 percent to 2.6 percent over the same period, reflecting the pass-through of higher energy costs.
The vulnerability stems from structural factors. Oil and gas consumption accounts for around 4 percent of Asia’s GDP — nearly double that of Europe — while limited domestic production leaves many economies dependent on imports. Net energy imports amount to roughly 2.5 percent of GDP across the region, rising to as high as 8 percent in some economies.
Beyond direct fuel costs, the IMF warned of broader supply chain risks. Disruptions to petrochemical inputs such as helium and sulfur could amplify production bottlenecks if the conflict drags on.
Despite these pressures, the Fund said Asia entered 2026 with stronger-than-expected momentum, supported by resilient exports — particularly in technology goods — and recovering consumption.
That underlying strength is expected to partially offset the shock, keeping growth forecasts broadly stable under the IMF’s baseline scenario, which assumes the energy disruption remains limited in duration.
For South Korea, the IMF struck a cautiously balanced tone.
“Korea starts from a strong macroeconomic position,” said Thomas Helbling, deputy director of the Asia and Pacific Department. He cited the country’s solid growth momentum, supported by the tech cycle, and its proactive policy response to mitigate the impact of the shock.
The IMF also highlighted Korea’s relatively strong energy buffers as a key advantage compared to other energy-importing economies in the region.
Still, vulnerabilities remain.
“Korea, like the rest of Asia, is an energy-importing economy,” Helbling said, noting that the outlook could deteriorate significantly under a more prolonged or severe energy shock scenario.
Under the IMF’s adverse scenario, oil prices could rise as much as 60 percent above earlier forecasts this year and remain elevated into 2027, leading to broader output losses and more persistent inflation across the region. In such a case, the impact would extend beyond price increases.
“This is a shock which has both a price impact and a quantity impact,” Srinivasan said, warning that prolonged disruptions could lead to shortages in energy-related inputs and amplify supply chain stress.
“If you have both price shocks and shortages, the growth impact becomes much more acute,” he added.
Against this backdrop, the IMF urged policymakers to avoid overreacting to short-term inflation spikes while remaining flexible.
Most Asian central banks still have room to “look through” the initial surge in energy prices, as inflation expectations remain broadly anchored, the Fund said. However, it cautioned that monetary policy must remain agile if the shock proves more persistent.
On the fiscal side, the IMF reiterated its long-standing stance against broad-based subsidies and price controls, calling instead for targeted and temporary support measures.
“Generalized subsidies are costly, distortionary and very hard to unwind,” Srinivasan said, emphasizing the need to preserve fiscal buffers after years of repeated shocks.
The Fund also framed the current crisis as a catalyst for longer-term structural adjustments.
It called for greater investment in alternative energy, improved energy efficiency and stronger power infrastructure to reduce dependence on imported fuels. At the same time, it urged deeper regional trade integration to cushion external shocks and enhance resilience.
“The near-term task is to absorb the shock while preserving policy credibility,” Srinivasan said. “The medium-term task is to build a more resilient, balanced and inclusive growth model.”
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