IMF cuts Korea's 2025 growth outlook to 2%

An International Monetary Fund (IMF) team led by Mission Chief for Korea Rahul Anand, third from right, announces its findings on the Korean economy during a press conference at the Government Complex Seoul, Wednesday. The team wrapped up its 14-day visit here after an annual consultation with the government. Courtesy of Ministry of Economy and Finance By Lee Kyung-min The International Monetary Fund's (IMF) mission team to Korea lowered the 2025 growth outlook for the country to 2 percent, Wednesday, from an earlier projection of 2.

2 percent by the IMF headquarters, citing heightened uncertainties and downside risks. Led by Mission Chief for Korea Rahul Anand, the team also slashed the country's growth estimate for this year to 2.2 percent, down from 2.



5 percent announced by the headquarters in October. "Underpinning the bleak outlook is a weak recovery of domestic demand despite strong semiconductor exports," the team said of its findings on the 2024 Korean economy as it wrapped up its annual consultation with financial authorities here. The team visited Korea for two weeks from Nov.

7 to meet officials at the Ministry of Economy and Finance, the Bank of Korea (BOK), the Financial Services Commission, the Financial Supervisory Service as well as other relevant entities from both the public and private sectors. Commenting on the 2025 economic outlook, the team said, "Uncertainty around the outlook remains high and risks are tilted to the downside." "The economy converges to its potential growth and the output gap is closed," Anand said.

“Tackling a declining labor force due to rapid population aging, enhancing capital allocation and bolstering productivity remain crucial to boost the growth potential." He added, "Advancing reforms would also help to enhance resilience in a changing environment characterized by geoeconomic fragmentation, technological changes, population aging and climate change." Read More Korea, IMF to hold annual consultation on economy, financial policy Korea to overtake Japan, Taiwan in per capita GDP this year: IMF Korea among advanced Asian countries with tempered inflation: IMF [INTERVIEW] Yoon was right to veto cash handout bill: OECD economist The IMF's downward revisions follow a trend seen among various financial institutions, both domestic and international, which have similarly highlighted heightened uncertainties.

Many have already adjusted Korea's 2024 growth forecast downward, lowering it from the mid-2 percent range to the lower 2 percent range, reflecting growing concerns about the country's economic trajectory. For instance, the Korea Development Institute and Korea Institute of Finance both slashed their growth outlooks from 2.5 percent to 2.

2 percent. The Ministry of Economy and Finance is considering revising its growth forecast for 2024, which currently stands at 2.6 percent.

Rahul Anand, second from right, the International Monetary Fund's (IMF) mission chief for Korea, is joined by his mission team members during a press conference at the Government Complex Seoul, Wednesday. Courtesy of Ministry of Economy and Finance For inflation, the IMF team viewed that it is around the BOK’s target of 2 percent and "a gradual monetary policy normalization seems appropriate given high uncertainty." Referring to the Korean government's belt-tightening policy to improve financial soundness, the team said, "The authorities’ envisaged fiscal consolidation and spending priorities in the 2025 budget proposal is appropriate.

" The IMF team emphasized the need for more ambitious fiscal consolidation efforts. It highlighted that such measures are essential to create the fiscal space necessary to address significant long-term spending pressures, ensuring sustainable economic stability in the future. "Targeted policy efforts to address real estate-related financial risks are welcome, and the authorities should continue to monitor pockets of vulnerabilities and stand ready to act preemptively," it said.

"If needed, additional prudential measures could be considered as monetary policy normalizes further." In the meantime, the IMF team assessed that the Korean economy "demonstrated remarkable resilience against global shocks." "Strong economic fundamentals and sound macroeconomic policies have helped the Korean economy navigate through multiple global shocks in recent years," it said.

The IMF team also noted that reinvigorating economic growth and strengthening resilience to the evolving global landscape are crucial priorities. A near-term mix of monetary normalization, exchange rate flexibility, gradual fiscal consolidation and targeted financial policies will help preserve macroeconomic stability and fortify the recovery, it added..