1 day Ago By Choi Ji-won
The International Monetary Fund on Wednesday lowered its economic growth forecast for South Korea to 2 percent next year, down from 2.2 percent projected earlier in October, citing high uncertainties and weak domestic demand. The announcement came after a team of IMF officials led by Korea mission chief Rahul Anand made a two-week visit to Seoul for an annual country meeting with the finance ministry, the Bank of Korea and other institutions to discuss the country's economic policy measures.
"The real gross domestic product is projected to expand by 2 percent in 2025 as the economy converges to its potential growth and the output gap is closed," Anand said during a press briefing held Wednesday in Seoul. The IMF's forecast is the most conservative among major institutions. The BOK projects 2.
1 percent growth, while both the government and the OECD maintain a slightly higher estimate of 2.2 percent. Exports have grown for 13 consecutive months through October, with annual figures expected to hit a record high.
However, uncertainties are rising due to changing global conditions. Private consumption, while slightly improved, remains below 1 percent growth, prolonging stagnation. The IMF also trimmed its forecast for South Korea’s GDP growth this year to 2.
2 percent, down from 2.5 percent, citing strong semiconductor exports as a key driver. However, the sluggish recovery in domestic demand continues to weigh on the economy.
The IMF highlighted significant risks, stating the outlook remains highly uncertain and “tilted to the downside.” These risks include a slowdown among trading partners, escalating geopolitical tensions and commodity price volatility stemming from conflicts in the Middle East. Amid such uncertainty, the IMF recommended a gradual normalization of monetary policy, noting inflation is stabilizing and expected to reach the BOK’s 2 percent target next year.
The fund also stressed that foreign exchange interventions should be limited to addressing disorderly market conditions. Anand commended the BOK for maintaining a tight monetary stance and welcomed its first rate cut in October as part of a shift toward easing. Looking ahead, the IMF Korea mission chief emphasized the importance of addressing South Korea’s long-term fiscal and structural challenges, particularly those driven by its rapidly aging population.
He called for more ambitious fiscal consolidation efforts and comprehensive mid- to long-term economic reforms to create the fiscal space necessary to meet escalating expenditure demands. “Comprehensive reforms are needed to tackle declining labor force, including through alleviating economic constraints that hold back Korea’s fertility rate, increasing female labor force participation and attracting foreign talents," Anand recommended. He also emphasized the need for stronger policies to bolster Korea's resilience amid shifting domestic and global conditions.
"Maintaining Korea’s competitiveness is key to navigating the evolving global trade landscape," Anand said. "Policy priorities include boosting innovation, diversifying supply chains, and promoting service exports. Structural fiscal reforms are required to create space for meeting aging-related spending needs, including through reforming the pension system, adopting fiscal rules, increasing revenue mobilization and prioritizing spending.
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