OECD sharply raises South Korea's growth forecast to 3.7% from 2.6%

The OECD has sharply raised its growth forecast for South Korea, projecting the economy will expand at a faster pace than previously expected on the back of strong exports and industrial output. The organization also revised its inflation outlook upward, reflecting rising international energy prices.

In its interim economic outlook released Wednesday, the OECD raised its forecast for South Korea's economic growth this year to 3.7%, up 1.1 percentage points from the 2.6% it projected in June — a significant revision in just three months.

The new forecast surpasses projections from major institutions including the Bank of Korea (3.3%), the Korea Development Institute (3.2%), the Asian Development Bank (3.2%) and Moody's (3.5%). Among major investment banks, it is broadly in line with the more optimistic estimates from JPMorgan (3.8%), Citigroup (3.7%) and Bank of America (3.6%).

The OECD also significantly revised its outlook for next year, projecting South Korea's economy will grow 2.6% in 2027, up 0.7 percentage points from its previous forecast of 1.9%.

The organization said South Korea's economy would be driven this year by "strong export and production growth," with a gradual recovery in consumer spending expected to continue into next year.

According to the Ministry of Economy and Finance, South Korea recorded the largest upward revision to its growth forecast among G20 economies in both the June and September outlooks this year. The country's next-year forecast also saw the biggest upward adjustment among G20 members in this round.

The government attributed the revisions to South Korea's recent export strength and first-half growth performance. "The OECD confirmed that the Korean economy grew 3.8% in the first half of this year and also factored in customs export growth through Sept. 10," a ministry official said. "It concluded that export growth will continue to expand and that investment and production are also rising, so this momentum will be sustained."

The inflation outlook was also raised. The OECD now expects South Korea's consumer prices to rise 3.0% this year, up 0.4 percentage points from its June forecast. For next year, it raised its projection by 0.5 percentage points to 2.7%.

The upward revision to the inflation outlook reflects both stronger-than-expected economic growth and a higher energy price trajectory compared with June projections. Still, the OECD expects South Korea's inflation to remain below the G20 averages of 4.1% this year and 3.6% next year.

The global economic outlook was mixed. The OECD raised its world growth forecast for this year by 0.1 percentage points to 2.9%, while trimming next year's projection by 0.1 percentage points to 3.0%. It expects currently elevated international energy prices to gradually stabilize from the fourth quarter onward.

The OECD identified further increases in energy prices, supply shocks from worsening weather conditions including El Niño, and a continued rise in long-term government bond yields as key downside risks to the global economy. On the upside, it said an early resolution to the war in the Middle East could provide a positive boost to global growth.

The spread of AI was also cited as a potential growth driver through expanded investment and production. However, the OECD said concerns about the profitability of AI-related companies and their high reliance on leverage warrant continued monitoring.

On policy, the OECD recommended that monetary policy remain focused on keeping inflation expectations anchored, while support measures in response to rising energy prices should be targeted and temporary. It also stressed the need for structural reforms over the medium to long term to lift potential growth.