The International Monetary Fund (IMF) stated that if trade tensions between the U.S. and China increase after the U.S. presidential election, South Korea will be relatively more negatively impacted. Thomas Helbling, IMF Deputy Director for Asia-Pacific, remarked at an IMF press conference on Asia-Pacific economic outlook in Washington D.C. yesterday (24th local time), that the escalation of trade tensions would be a major downside risk for South Korea.
Helbling emphasized that South Korea is strongly integrated into global supply chains and the world market and is significantly exposed to both the U.S. and China. Although he refrained from giving specific details, he noted that much would depend on specific measures taken by both countries if trade tensions increase.
Regarding South Korea’s economic growth rate, Helbling confirmed that as per the IMF’s World Economic Outlook, it is expected to drop from 2.5% this year to 2.2% next year. He assessed that the South Korean economy showed stronger-than-expected growth, particularly in the external sector, in the first half of this year, while the domestic sector was weaker compared to external or export sectors.
He added that the weakness in domestic demand reflected a loss of purchasing power due to global inflation and tight monetary policy, but this situation is expected to change soon. Helbling predicted that as the Bank of Korea starts to ease monetary policy and inflation decreases, both nominal wages and income would increase, leading to enhanced real purchasing power and strengthened domestic demand.
Referencing the Bank of Korea’s third-quarter economic outlook, he also noted that domestic demand had indeed strengthened in the third quarter.
Krishna Srinivasan, Director of the IMF’s Asia and Pacific department, stated during the press conference that Asia remains the engine of global growth. The Asian economy’s stronger-than-expected growth led the IMF to raise the economic growth outlook for the region to 4.6% for 2024 and 4.4% for 2025.
Although growth in India and China is expected to slow slightly by 2025, it will still maintain resilience, while other emerging economies, excluding China and India, are projected to maintain robust and broad-based growth.
Srinivasan noted that inflation in Asia is lower and more stable compared to other regions, implying that most Asian central banks have room to lower interest rates, though some exceptions like Australia and New Zealand exist.
Additionally, he welcomed the Bank of Japan’s moves to end its negative interest rate policy, as it raised the rate from 0-0.1% to about 0.25% in July but advised that additional policy rate increases should proceed gradually.
Meanwhile, IMF Managing Director Kristalina Georgieva, in a separate press briefing, noted that China faces a crossroads between continuing its export-driven growth strategy or boosting domestic demand and turning Chinese consumers into a growth engine. She conveyed that given China’s substantial economic growth, the IMF sees domestic demand as a more reliable growth driver.
Georgieva expressed hope that China recognizes one of the major short-term obstacles to consumer confidence lies in the real estate sector, and that decisive measures to address it would aid in restoring consumer confidence. She reiterated that without action, China’s potential growth rate could decelerate to below 4%, reflecting the IMF’s downward revision of China’s economic growth forecast for this year to 4.8%, a 0.2 percentage point drop from its July forecast.
[Photo Source: Yonhap News / IMF Broadcast Capture]
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