Effects of Expansionary Fiscal and Accommodative Monetary Policies
South Korea's Inflation Rate Projected at 2.1% for Both This Year and Next
The Asian Development Bank (ADB) has revised its economic growth forecast for South Korea this year to 0.9%, raising it by 0.1 percentage points from its September projection. The ADB attributed this adjustment to increased consumption driven by stimulus measures, expanding global semiconductor demand, and reduced uncertainty following the conclusion of tariff negotiations.
In its "Asian Economic Outlook for December 2025" released on December 10, the ADB projected South Korea's growth rate at 0.9% for this year and 1.7% for 2026. Both figures are 0.1 percentage points higher than the estimates made in September.
Previously, the ADB had forecast South Korea's economic growth rate for this year at 1.5% in April, then sharply lowered it by 0.7 percentage points to 0.8% in July, and maintained that level in September. The ADB cited the government's expansionary fiscal policy, the effects of accommodative monetary policy, and the robust global semiconductor market as the main factors behind the slight upward revision of South Korea's growth outlook for this year.
However, the ADB also warned that downside risks persist, including a sluggish real estate market, a slowdown in global trade, and renewed geopolitical tensions.
President Donald Trump signed a proclamation imposing a 25% tariff without exceptions on steel and aluminum products imported into the United States, and announced that tariffs on automobiles and semiconductors are also under consideration. On February 13, 2025, export vehicles were waiting to be loaded at Pyeongtaek Port in Gyeonggi Province. Photo by Kang Jinhyung
Inflation forecasts for South Korea have also been revised. The ADB projected the inflation rate for both this year and next year at 2.1%, which is 0.2 percentage points higher than the September forecast. The ADB explained that this year's inflation reflects rising food prices and international oil prices, while next year, the reduction of fuel tax subsidies and the depreciation of the Korean won could exert additional upward pressure on prices.
In contrast to South Korea, the growth outlook for the Asia-Pacific region has been raised more significantly. The ADB forecast the region's growth rate at 5.1% for this year, up 0.3 percentage points from its September projection. This revision was largely due to India recording higher-than-expected growth driven by strong domestic demand, as well as continued export growth among high-income, technology-oriented exporting countries.
The growth forecast for next year was also revised upward by 0.1 percentage points to 4.6%. However, the ADB pointed out that high tariffs imposed by the United States and the global economic slowdown remain constraints on growth.
On the other hand, inflation forecasts for the region have been slightly lowered. The ADB projected the Asia-Pacific region's inflation rate for this year at 1.6%, down 0.1 percentage points from the September forecast, mainly due to lower-than-expected food price increases in India. The inflation forecast for next year remains unchanged at 2.1%.
This year and next, most major Asian economies are expected to post higher growth rates than South Korea: Vietnam at 7.4% and 6.4%, Taiwan at 7.3% and 4.0%, India at 7.2% and 6.5%, Indonesia at 5.0% and 5.1%, China at 4.8% and 4.3%, and Malaysia at 4.5% and 4.3%. Japan is expected to grow by 1.1% this year and 0.6% next year.
The ADB stated, "While trade uncertainty has eased following the conclusion of trade agreements, there is a possibility that economic growth could slow due to weakened global economic activity resulting from high tariff barriers."
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