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IMF ups Korea’s 2024 inflation outlook to 2.4%

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A man shops at a supermarket in central Seoul on Nov. 12. [NEWS1]
A man shops at a supermarket in central Seoul on Nov. 12. [NEWS1]

The International Monetary Fund (IMF) has expected Korea to reach the country’s inflation target of 2 percent by the end of next year, the Finance Ministry said Friday.

In a report released Friday, the IMF said that this year’s inflation is forecast to be 3.6 percent and to moderate to reach its target of 2 percent by around the end of 2024, with the average for next year likely to be 2.4 percent, according to the Ministry of Economy and Finance.

The report was drawn up after a six-member IMF team, led by its Korean missions chief, Harald Finger, made a two-week visit to Korea through early September for an annual meeting with the Finance Ministry, the Bank of Korea (BOK) and other relevant institutions to discuss the country’s economy and policy measures.

In its earlier report released in October, the IMF put the inflation outlook for this year at 3.6 percent and 2.4 percent for 2024.

Korea’s on-year inflation has gathered pace for the third consecutive month in October despite the recent downtrend due mainly to greater volatility in global oil prices and rising prices of fresh food items amid unfavorable weather conditions.

Consumer prices, a key gauge of inflation, fell to a year-low of 2.3 percent on-year in July but rose to 3.4 percent in August, 3.7 percent in September and further to 3.8 percent last month, according to government data.

The IMF noted it is crucial to maintain the current restrictive stance on monetary and fiscal policy for the time being to tame inflation.

Last month, the BOK kept its benchmark interest rate unchanged at 3.5 percent, a level maintained since January 2023. It was the sixth straight freeze, but the level is the highest since 2008.

The IMF also forecast that the Korean economy will make a gradual recovery from this year on the back of rising exports of semiconductors and the tourism industry to achieve a 1.4 percent growth, and such momentum is expected to continue through next year to log growth of 2.2 percent, the ministry said.

In July, it put forward a 2.4 percent gain for the Korean economy but slashed the projection to 2.2 percent, as the faltering Chinese economy and the sluggish manufacturing sector have slowed down the global economy.

The latest forecast is on par with the forecast by the BOK, while the Korean government has anticipated a 2.4 percent expansion next year, and the Organisation for Economic Co-operation and Development has put forward a 2.1 percent gain.

In October, exports rose for the first time in 13 months, driven by upbeat chip sales in the global market, and the country logged a trade surplus for the fifth consecutive month last month on falling energy imports, according to government data.

The IMF advised Korea to continue efforts to ensure financial soundness, positively assessing the country’s restrictive monetary and budget policies and the push for introducing tighter fiscal rules.

In a longer-term perspective, the organization said Korea needs to seek structural reforms, such as boosting labor market flexibility, erasing gender inequality in the labor market and reforming the pension system.

The IMF said it will assess Korea’s foreign exchange reserves only with qualitative factors, just as it does for other advanced nations starting this year. So far, it has used both qualitative and quantitative factors.

Korea currently has enough foreign reserves to counter external shocks, the organization said.

BY PARK EUN-JEE, YONHAP [park.eunjee@joongang.co.kr]