An International Monetary Fund (IMF) team led by Rahul Anand, Mission Chief for the Republic of Korea, concluded its visit to South Korea on September 24, 2025. The team was in the country from September 11 to conduct discussions as part of the IMF’s annual Article IV Consultation.
At the end of the mission, Mr. Anand issued a statement highlighting recent economic developments and policy recommendations for South Korea. He noted that ongoing domestic political uncertainty and global trade policy issues have slowed growth in 2025, while inflation has stayed near target levels. According to Mr. Anand, “Prolonged domestic political and global trade policy uncertainties have weighed on growth in 2025, while inflation has remained close to target. With sufficient policy space, the authorities are taking measures to stimulate the economy. While the accommodative policies will support near-term growth, achieving the authorities’ 3 percent growth target would require advancing structural reforms to raise productivity, address demographic headwinds, and improve capital allocation. The government’s new Economic Growth Strategy aims to address some of these key structural challenges.”
The IMF projects that South Korea’s economy will grow by 0.9 percent in 2025 as domestic demand gradually recovers due to more supportive fiscal and monetary policies and strong demand for semiconductors helps offset declines in other exports. Real GDP is expected to expand by 1.8 percent in 2026 as uncertainties ease and policy effects become more pronounced.
Mr. Anand stated that “Growth is expected to reach 0.9 percent in 2025, as domestic demand gradually recovers, supported by more accommodative fiscal and monetary policies, and strong semiconductor external demand offsets declines in other exports. Real GDP is projected to expand by 1.8 percent in 2026, driven by easing uncertainties, the full impact of accommodative policies, and base effects.” Inflation fell to 1.7 percent year-on-year in August but is forecasted to remain close to the Bank of Korea’s two-percent target through next year.
He emphasized that risks remain high with a downside bias: “Uncertainty around the outlook remains high and risks are tilted to the downside.”
Given current conditions—including a negative output gap—accommodative monetary and fiscal policies are considered appropriate according to Mr. Anand: “Given sufficient policy space, a negative output gap, and inflation close to target, accommodative monetary and fiscal policies are appropriate.” He added that monetary easing could help support recovery but cautioned policymakers should stay flexible amid persistent external uncertainties.
Regarding fiscal matters he said: “The authorities’ near-term fiscal stance and spending priorities in the 2026 budget proposal are appropriate.” He also advised resuming fiscal consolidation once growth returns closer to potential levels so that resources can be allocated toward long-term spending needs such as an aging population.
On financial stability concerns he noted: “Proactive policies to curb household loan growth...and resolve troubled real estate project financing exposures have been effective in addressing financial sector vulnerabilities.”
Mr. Anand pointed out that revitalizing domestic demand alongside diversifying export markets will be important for resilient growth going forward: “Revitalizing domestic demand and diversifying Korea’s export structure will be essential for more resilient growth.” He welcomed efforts under South Korea's Economic Growth Strategy focused on artificial intelligence adoption and innovation.
Structural reforms were identified as crucial for boosting long-term potential: “Accelerating structural reforms remains crucial to boost Korea’s potential growth.” Reforms should focus on closing productivity gaps between small- and medium-sized enterprises versus larger firms while leveraging AI transformation opportunities.
The IMF also encouraged further corporate governance improvements along with foreign exchange market reforms aimed at attracting investment over time.
In closing his remarks Mr. Anand said: “We would like to express our gratitude to the authorities and other stakeholders for productive discussions, excellent support, and generous hospitality during our visit.”