The Organisation for Economic Co-operation and Development (OECD) has cut South Korea's economic growth forecast for this year from 2.1% to 1.7%. Korea is projected to suffer the greatest economic shock among major economies from surging oil prices driven by the Middle East war, resulting in a larger downward revision than those for major eurozone countries. Notably, Japan's forecast was left unchanged while the United States' was revised upward — a stark contrast with Korea. Amid mounting pressures from what analysts call the "triple highs" — high inflation, a high exchange rate, and high interest rates — following the Iran crisis, analysts warn that the Korean economy stands at a crossroads of stagflation, where rising prices and an economic slowdown occur simultaneously.
According to the Ministry of Finance and Economy on the 26th, the OECD revised Korea's growth forecast for this year to 1.7%, a 0.4 percentage point reduction from its December projection. The figure is lower than the 2.0% forecast by the government and the Bank of Korea (BOK), and also below the 1.9% projected by the International Monetary Fund (IMF). The OECD kept its growth forecast for next year unchanged at 2.1%. "For some Asian countries such as Korea that rely heavily on Middle Eastern energy imports, a prolonged war could burden production activities due to energy shortages," the OECD said.
The inflation forecast for this year was raised by 0.9 percentage points from 1.8% to 2.7% compared with the December projection. The forecast for next year was kept unchanged at 2.0%.
The OECD maintained its global gross domestic product (GDP) growth forecast for this year at 2.9%. It lowered next year's projection by 0.1 percentage points to 3.0%. For the Group of 20 (G20) nations, the OECD raised this year's inflation forecast by 1.2 percentage points from 2.8% to 4.0%, and projected 2.7% for next year.
"The projections assume that U.S. effective tariff rates remain at early March levels and that oil, gas, and fertilizer prices gradually decline from mid-year," the OECD said. "Depending on future conflict dynamics and energy price trajectories, both upside and downside risks are emerging for GDP, inflation, and supply chains." The explanation suggests that a prolonged war could push growth lower and inflation higher.
The OECD issues regular economic outlooks in May–June and November–December, and revises figures through interim forecasts in March and September. The downward revision reflects the Middle East war that erupted on the 28th of last month and the ensuing high oil prices. Korea suffered a greater war-related shock than the United States (revised up from 1.7% to 2.0%), Japan (unchanged at 0.9%), and China (unchanged at 4.4%). The eurozone saw the same 0.4 percentage point cut as Korea, from 1.2% to 0.8%. Only the United Kingdom had a larger downward revision than Korea, from 1.2% to 0.7%.
"The U.S. saw stronger-than-expected economic growth compared with its December forecast, driven by expanded AI investment and a stock market boom through February," a Ministry of Finance and Economy official said. "Even the Middle East war in March could not fully offset this momentum, which effectively made the U.S. the only major economy to receive an upward revision."
Experts point out that an economic contraction could become a reality. "As the war drags on longer than expected, upward pressure on prices from rising oil costs is intensifying," said Kang Sung-jin, a professor of economics at Korea University. "Korea faces a double burden with a rising exchange rate on top of that, which makes a steeper growth decline inevitable compared with other countries."
Brent crude futures prices have been fluctuating around $100 per barrel, and the won-dollar exchange rate has breached the psychological threshold of 1,500 won. Last month's producer price index was recorded at 123.25 (based on 2020 = 100), marking six consecutive months of increases.
Corporate sentiment, which had appeared to be recovering, has also sharply reversed. A survey of the Business Survey Index (BSI) conducted by the Korea Enterprises Federation targeting the top 600 companies by revenue showed the April BSI outlook fell 17.6 points from March to just 85.1. The overall BSI outlook had turned positive last month for the first time in 48 months at 102.7, but plunged this month into negative territory due to the Middle East crisis.
If high oil prices persist, the current account surplus is also expected to shrink. KB Securities estimated that if Brent crude prices remain at around $95 per barrel for one month, this year's annual current account surplus would decline to approximately $168.1 billion. That represents a roughly $2 billion decrease from the BOK's pre-crisis annual current account forecast of $170 billion, which assumed an average oil price of $64 per barrel.
