The International Monetary Fund (IMF) has lowered its global economic growth forecast for this year but significantly raised South Korea's projection to 2.6%. This adjustment is attributed to strong exports of semiconductors and artificial intelligence (AI) hardware, which are supporting the country's economic growth despite supply shocks from the Middle East conflict.
In its July World Economic Outlook released on July 8, the IMF projected the global economy to grow by 3.0% this year, a decrease of 0.1 percentage points from its April forecast.
South Korea's growth forecast was revised upward from 1.9% to 2.6%, marking the largest increase among the 30 major economies included in the report. The forecast for next year was also raised from 2.1% to 2.5%, an increase of 0.4 percentage points.
The IMF noted that the global economy is influenced by two opposing trends: supply shocks from the Middle East conflict and a technology cycle driven by AI. It expects growth paths to differ based on countries' exposure to the conflict and their integration into the AI technology value chain.
Despite South Korea's high dependence on energy imports from the Middle East, the strong performance of semiconductor and AI hardware exports has outweighed negative impacts, according to the IMF. South Korea is mentioned alongside Taiwan, Thailand, and Malaysia as one of the top four countries for net exports of AI hardware.
The IMF also highlighted that South Korea's growth rate for the first quarter of this year reached an annualized 7.5%, significantly exceeding the April estimate of 1.8%. The annualized figure represents the growth rate projected to continue for a year based on the quarter's performance.
Global economic outlooks are somewhat mixed. The growth rate for advanced economies is projected at 1.7%, down 0.1 percentage points from April. The United States maintains its forecast at 2.3%, while the Eurozone and Japan have been revised down to 0.9% and 0.6%, respectively.
Emerging and developing economies are expected to grow by 3.8%, a decrease of 0.1 percentage points. China's growth forecast was raised to 4.6% due to strong performance in advanced manufacturing and exports, while the Middle East and Central Asia are projected to grow only 0.7% due to disruptions in energy exports.
The IMF has projected the global inflation rate for this year at 4.7%, reflecting an increase of 0.3 percentage points from its April forecast, with advanced economies expected to see inflation at 3.0% and emerging economies at 5.8%.
This outlook is based on the assumption that disruptions in the Strait of Hormuz will ease by mid-July and that energy supply and logistics conditions will normalize to pre-war levels by March 2027.
The IMF assessed that global economic risks are more balanced than in April but still skewed to the downside, citing uncertainties in the Middle East, trade fragmentation, and weakened policy capacity in some countries as major risk factors.
Regarding AI, the IMF noted that both growth contributions and downside risks coexist. While AI can enhance efficiency and contribute to growth, a decline in expectations could dampen consumption and financial markets.
In terms of policy direction, the IMF emphasized prioritizing monetary policy aimed at price stability. It stressed that fiscal support should be temporary and targeted at vulnerable populations. Structural reforms to enhance energy security and AI capabilities, as well as international cooperation to restore trade norms, are also necessary.
The South Korean government welcomed the significant upward revision of its growth forecast, indicating that the momentum from semiconductor and AI-related growth is likely to continue into next year.
However, it acknowledged ongoing geopolitical risks and domestic challenges affecting livelihoods, committing to focus on stabilizing living costs, supporting employment for vulnerable groups such as youth, and addressing polarization. The government also plans to proactively respond to industrial paradigm shifts, such as AI and green transitions, and enhance long-term growth potential through economic and social structural innovations.
* This article has been translated by AI.
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