On February 5, 2025, the Executive Board of the International Monetary Fund (IMF) concluded its Article IV consultation with the Republic of Korea. The consultation highlighted that Korea's strong economic fundamentals and sound macroeconomic policies have aided in navigating recent economic shocks. Economic growth has rebounded from a slowdown in 2023, inflation is at target levels, and financial stability risks have decreased.
The Korean economy is projected to be balanced in 2025, with growth reaching potential and inflation near target. Real GDP growth was estimated at 2.2 percent in 2024, driven by strong exports despite weak domestic demand. Growth is expected to moderate to around 2 percent in 2025 as domestic demand strengthens and export growth normalizes. Inflation declined to 1.9 percent in December 2024 due to easing global supply chain issues, lower oil prices, and restrictive monetary policy. It is projected to remain close to the Bank of Korea’s target of 2 percent in 2025 as the output gap closes.
Uncertainty remains high with risks tilted towards the downside due to policy shifts among major trading partners, domestic political developments, softening global semiconductor demand, volatile commodity prices, and geopolitical conflicts.
Executive Directors commended Korean authorities for their swift policy responses addressing inflation and financial stability risks but noted increased downside risks amid heightened uncertainty from policy shifts among major trading partners and recent domestic political developments. They agreed that near-term policies should focus on rebuilding buffers and preserving macroeconomic stability while advancing structural reforms to boost growth potential.
Directors welcomed ongoing normalization of monetary policy but suggested foreign exchange interventions should be limited to preventing disorderly market conditions. Fiscal consolidation plans for the 2025 budget were supported; however, Directors emphasized more ambitious medium-term consolidation would be necessary for sustainable aging-related spending.
Monitoring financial vulnerabilities in real estate was recommended by Directors who also encouraged comprehensive reforms addressing labor force challenges by improving youth income opportunities, increasing female participation in labor markets, attracting foreign talent along with FX/capital market reforms aimed at strengthening financial institutions’ resilience against private debt risk exposure alongside enhancing service sector productivity through AI adoption initiatives targeting innovation regulation streamlining diversifying exports/supply chains promoting service exports amidst evolving trade landscapes climate change mitigation objectives aligned emissions targets preparation vulnerable groups impacted technological advancements particularly AI implementation scenarios next Article IV consultation scheduled standard annual cycle basis following year conclusion current session proceedings IMF headquarters Washington DC United States America globally recognized institution 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