IMF Announces Results of Annual Consultation on September 24
Growth Forecast Raised by 0.1 Percentage Point from July’s 0.8%
Rebound to 1.8% Projected for Next Year
The International Monetary Fund (IMF) has projected South Korea’s economic growth rate for this year at 0.9%. This is a 0.1 percentage point increase from the 0.8% forecast in the World Economic Outlook released in July. The IMF plans to include this revised outlook in its World Economic Outlook to be released in October. The IMF also assessed the Korean government’s AI-centered economic growth strategy and its expansionary fiscal policy stance as appropriate.
On September 24, the IMF consultation team announced the results of its annual Article IV Consultation with the Korean government. The IMF stated, “South Korea’s economic growth rate is expected to reach 0.9% this year and rebound to 1.8% next year,” adding, “Following a slowdown in 2025, reduced uncertainty and accommodative policies are expected to drive a rebound in 2026.” This year’s growth forecast is 0.1 percentage point higher than the 0.8% projected in July, while the forecast for next year remains unchanged at 1.8%.
The IMF expects inflation trends to remain stable. “Inflation is projected to remain close to the target level of 2% in both 2025 and 2026,” the IMF said. The IMF delegation, led by Rahul Anand, visited South Korea from September 11 to 24 to complete the two-week annual consultation.
Regarding monetary and fiscal policy, the IMF concluded that maintaining an accommodative stance was appropriate. “The current combination of short-term accommodative monetary and fiscal policies, along with targeted financial measures, is suitable for supporting growth and maintaining macroeconomic stability,” the IMF stated. “The government’s short-term fiscal stance and the spending priorities in next year’s budget are also appropriate.” However, the IMF added, “Efforts to restore fiscal soundness should be resumed to ensure sufficient capacity to cope with long-term, large-scale fiscal spending pressures.”
The IMF also gave a positive assessment of the government’s AI-centered growth strategy. “We welcome the government’s economic growth strategy focusing on AI adoption, innovation, and service exports,” the IMF said. “Policies that support the development of service exports and leverage innovation and the AI transformation to diversify export markets and supply chains can further strengthen the resilience of external demand.” Regarding real estate measures, the IMF analyzed that “proactive policies to curb household lending in certain areas of Seoul and resolve distressed real estate project financing have been effective in mitigating vulnerabilities in the financial sector.”
The IMF emphasized the need to boost domestic demand and diversify the export structure to strengthen the foundation for growth. It explained that gradually reducing household debt, easing labor market rigidity, and addressing demographic changes would help stimulate domestic demand. The IMF also stressed the need for structural reforms to raise South Korea’s potential growth rate. “Efforts should focus on narrowing the productivity gap between small and large enterprises and leveraging the benefits of the AI transformation,” the IMF said. “To address long-term spending pressures from population aging, it will be necessary to reform the pension system, adjust fiscal revenues, and improve spending efficiency.”
An official from the Ministry of Economy and Finance stated, “The growth rate has been revised upward compared to the IMF’s July outlook,” adding, “This report is a draft of the findings from the fact-finding mission and will be reflected in the World Economic Outlook in October.” The official also noted, “It is noteworthy that the need for expansionary policies in the short term was acknowledged, and that structural reforms related to AI and the innovation economy were positively evaluated.”
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