This image, provided by the finance ministry, shows the IMF team, led by mission chief Rahul Anand, (3rd from R), speaking during a press briefing in Seoul on Nov. 20, 2024. (Image courtesy of Yonhap)
SEOUL, Nov. 20 (Korea Bizwire) — An International Monetary Fund (IMF) team said Wednesday that South Korea’s economy is forecast to grow 2 percent next year, citing downside risks including a slowdown in trade and heightened geopolitical tensions.
The latest forecast by the IMF team marked a 0.2 percentage-point drop from an earlier projection presented by the IMF’s executive board in October.
The announcement was made after the IMF team, led by Korea mission chief Rahul Anand, made a two-week visit to South Korea for an annual meeting with the finance ministry, the Bank of Korea (BOK) and other relevant institutions to discuss the country’s economy and policy measures.
“The real gross domestic product is projected to expand by 2 percent in 2025 as the economy converges to its potential growth and the output gap is closed,” Anand said in his statement.
For 2024, the team forecast the country’s GDP to expand 2.2 percent on-year, also down from the 2.5 percent growth projected earlier by the IMF.
“Growth is expected to reach 2.2 percent in 2024, supported by strong semiconductor exports, while partially offset by a weak recovery of domestic demand,” the released statement said.
“Inflation has declined to 1.3 percent on-year in October 2024 and is projected to remain close to the target of 2 percent in 2025. Uncertainty around the outlook remains high, and risks are tilted to the downside,” it added.
“So the downside risks that we identify include risks related to slowdown in trading partners and intensification of geopolitical tensions,” Anand said during a press briefing held in Seoul.
However, the mission chief said it would be premature to judge what kind of shocks or outcomes there might be, referring to potential policy shifts under the second Donald Trump administration, set to take office late January.
Since Trump’s victory in the U.S. presidential election earlier this month, the local currency has been fluctuating around the psychologically significant level of 1,400 won against the U.S. dollar.
However, the IMF official said foreign exchange interventions should remain limited to prevent disorderly market conditions.
“Exchange rate flexibility has helped Korea a lot, with exports and trade,” he said, adding that the IMF does not see any significant risk from volatility in the exchange rate market.
The mission chief said while inflation is around the BOK’s target rate of 2 percent, a gradual monetary policy normalization seems appropriate given high uncertainties.
He advised that the focus of the South Korean government should be on improving the potential growth through structural reforms.
“So some key elements of those structural reforms include improving productivity, both in the reducing the gap between manufacturing and services, big companies and SMEs through labor and product market reforms,” he said.
The statement cited the recent FX market and corporate value-up reforms as a good start.
The views expressed in the statement are those of the IMF staff and do not necessarily represent the views of the IMF’s executive board, he noted.
Based on the preliminary findings of this mission, the staff will prepare a report, subject to management approval, that will be presented to the IMF’s executive board for discussions and decisions.
(Yonhap)
