2025 Korea Annual Consultation Report, “The International Monetary Fund (IMF) has projected that the Korean economy will enter a recovery phase in the second half of this year and show a clear recovery next year. The growth rate forecast remains unchanged at 0.9% for this year and 1.8% for next year.”
According to the Ministry of Economy and Finance, the IMF released the “2025 Korea Annual Consultation Report” on the 24th. The IMF highlighted that deregulation of the service sector and small businesses, along with the adoption of artificial intelligence (AI), are key to long-term productivity improvement. It praised the new government’s economic growth strategy for focusing on expanding AI use and innovation.
The IMF forecasted that private consumption would recover in the second half of this year due to accommodative monetary and fiscal policies and improved consumer sentiment post-elections, projecting a growth rate of 0.9% for this year. It expects domestic and international uncertainties to diminish next year, with the effects of supplementary budgets and other policies manifesting strongly. Consequently, it sees the growth rate increasing to 1.8% and gradually recovering to the level of potential growth.
The IMF Board commended the resilience of the Korean economy amidst internal and external shocks, supported by Korea’s robust economic fundamentals and effective policy management. However, it also noted downside risks such as the potential intensification of trade and geopolitical risks and semiconductor sluggishness due to decreased AI demand.
Inflation is expected to remain at target levels, with 2.0% this year and 1.8% next year, influenced by the appreciation of the Korean won and falling oil prices. The current account balance may see a temporary reduction in surplus next year due to rising effective tariff rates, but is anticipated to improve in the medium term with a recovery in exports and increased overseas investment income.
The IMF suggested strengthening domestic demand and export bases in response to heightened external uncertainties. It pointed out Korea’s high comparative advantage in advanced manufacturing but noted a heavy reliance on specific countries and items.
Regarding fiscal conditions, despite short-term fiscal expansion from supplementary budgets, Korea’s medium-term fiscal stance remains neutral, with sound fiscal capacity and debt levels projected over the next five years. The financial sector is also deemed overall healthy and stable, thanks to proactive policy efforts by authorities.
Nonetheless, the IMF emphasized the need to adjust fiscal policy once potential growth rates are restored, considering inflation pressures. It urged efforts to enhance revenue and spending efficiency while reinforcing a credible medium-term fiscal framework, including a fiscal anchor, to ensure fiscal sustainability.
In the financial sector, the IMF positively assessed recent government stabilization efforts in the real estate market and project financing (PF) risk management. It also anticipated that institutional improvements like amendments to the Commercial Act and restructuring of the foreign exchange market would help alleviate the “Korea Discount” and expand the foundation for long-term domestic investment.