The International Monetary Fund (IMF) released its 2025 Article IV Staff Report for Korea on November 24. This report is based on consultations conducted by the IMF Korea Mission during its visit from September 11 to 24, which included meetings with the Ministry of Economy and Finance, the Bank of Korea, and other relevant government agencies and institutions. The main findings are as follows.
The IMF projected that the Korean economy will enter a recovery phase in the second half of 2025 and exhibit a clear rebound in 2026. It observed that private consumption is likely to recover in the latter half of 2025, underpinned by accommodative monetary and fiscal policies as well as improved consumer sentiment following the elections, and accordingly forecasts Korea’s growth rate for 2025 at 0.9%. For 2026, the IMF anticipated that Korea’s growth rate will rise to 1.8%, driven by easing domestic and external uncertainties, and the full materialization of policy effects – including the 2025 supplementary budget, with base effects coming into play. It further projected that the economy will gradually return to its potential growth rate. The IMF Executive Board also commended the Korean economy for demonstrating robust resilience despite internal and external shocks, noting that Korea’s solid economic fundamentals and the government’s “skillful policy management” have supported this performance. However, the IMF also assessed that downside risks remain, including the potential intensification of trade and geopolitical risks, as well as possible weakness in the semiconductor sector stemming from a slowdown in AI-related demand.
With respect to inflation, the IMF forecasted that, despite a slight increase in the first half of 2025, the inflation rate will remain around the target level – at 2.0% in 2025 and 1.8% in 2026 – influenced by factors such as the appreciation of the Korean won and lower oil prices. As for the current account balance, the IMF analyzed that the surplus will temporarily narrow in 2025-2026 due to higher effective tariff rates; however, the balance will gradually improve over the medium term, backed by a recovery in exports and increased income from overseas investments. Furthermore, it highlighted that, despite short-term fiscal expansion, Korea’s medium-term fiscal stance remains neutral and that “central government debt remains sustainable, with substantial fiscal space” over the next five years.
Meanwhile, the IMF commended both the new government’s short-term economic stimulus measures and its medium- to long-term growth strategies. Taking into account sufficient policy space and current economic conditions, it assessed that “looser monetary and fiscal policies are appropriate” at this stage, and that the expenditure priorities of the 2025 supplementary budget and the 2026 budget proposal are “broadly aligned” with the IMF’s recommendations.
Regarding the financial sector, the IMF positively evaluated recent government measures to stabilize the real estate market and efforts to manage project financing (PF) risks. In addition, it noted that recent institutional improvements, such as amendments to the Commercial Act aimed at enhancing corporate value and structural reforms in the foreign exchange market, have contributed to alleviating the “Korea discount” and strengthening the domestic long-term investment base.
The IMF also emphasized the need to strengthen both the domestic demand and export competitiveness to respond to heightened external uncertainties. In particular, it analyzed that in order to support the recovery of private consumption, it is essential to strengthen household debt management and broaden income bases through measures such as expanding employment opportunities for older workers, addressing labor market duality, and reforming the wage system toward a job-based framework. On the export front, the IMF noted that while Korea enjoys a strong comparative advantage in high-tech manufacturing, it remains highly dependent on certain countries and products. It recommended sustaining competitiveness in high-tech manufacturing through AI adoption and stepped-up research and development, while broadening the export base by increasing service exports and deepening intra-regional trade.
Finally, the IMF underlined that sustained structural reform efforts are necessary to achieve a potential growth rate of 3%. In particular, it stressed that deregulation in the services sector and for SMEs, as well as the adoption of AI, are key to long-term productivity improvements, noting that “The focus of the new administration’s EGS on economy-wide AI adoption and innovation is welcome.”
For further details, please refer to the official website of the IMF at www.imf.org.
