Wednesday, April 2, 2025

Is South Korea’s Economy in Trouble? IMF Sounds the Alarm

On the morning of November 20, Rahul Anand, head of the International Monetary Fund (IMF) mission to South Korea, delivered a briefing on the results of the 2024 IMF annual consultations at the Government Complex Seoul in Jongno-gu. 2024.11.20. / Newsis

The International Monetary Fund (IMF) mission team, which held its annual consultations with the South Korean government, has projected the country’s economic growth rate for next year to be 2.0%. The mission team highlighted the high level of uncertainty in the South Korean economy and emphasized significant downside risks. Regarding monetary policy, they advised a gradual reduction in the benchmark interest rate.

On Wednesday, the IMF mission presented the results of the annual consultation at the Government Complex Seoul. The IMF conducts such annual consultations to evaluate the economic outlook of its member countries.

These consultations comprehensively review the country’s overall economic situation, including macroeconomic, fiscal, and financial conditions. The IMF mission team arrived in South Korea on November 7 and has been meeting with various government departments to discuss this.

Mission chief Rahul Anand stated, “This year’s economic growth rate is expected to reach 2.2%, with strong semiconductor exports offsetting the weak recovery in domestic demand. Next year, we project real GDP growth to increase by 2.0%.”

In its World Economic Outlook released in October, the IMF revised its growth forecasts for South Korea by 0.3 and 0.2 percentage points, respectively, from its estimates of 2.5% for this year and 2.2% for next year. This adjustment likely reflects lower-than-expected growth in the third quarter and increased global uncertainties.

Anand emphasized the necessity of robust economic policies to enhance resilience against domestic and international changes. He stressed, “Maintaining competitiveness is crucial for responding to shifts in the global trade landscape.”

While noting that inflation is approaching the Bank of Korea’s target of 2%, Anand recommended a gradual normalization of monetary policy, given the high level of uncertainty. He also advised that interventions in the foreign exchange market should be limited to preventing disorderly market conditions.

Anand underscored the importance of ongoing monitoring of vulnerabilities related to real estate financial risks and preparing proactive measures. He suggested that as monetary policy gradually normalizes, additional prudential measures may be considered if necessary.

The IMF mission team also recommended structural reforms, identifying low birth rates and an aging population as key challenges.

Anand stressed, “To address the aging demographic, it’s crucial to expand growth potential, adapt to trade patterns and emerging technologies changes, and tackle climate vulnerabilities. Efforts should focus on mitigating economic constraints that hinder childbirth, increasing women’s participation in the workforce, and attracting international talent.”

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