NextFin news, The International Monetary Fund (IMF) raised its economic growth forecast for South Korea to 0.9 percent for 2025 on Wednesday, September 24, 2025, following its annual consultations with South Korean government officials in Seoul.
IMF mission chief for South Korea, Rahul Anand, stated that the upward revision reflects a stronger-than-expected second-quarter GDP growth of 0.7 percent and a recovery in domestic consumption supported by government stimulus packages and accommodative fiscal and monetary policies.
"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," Anand said during a press briefing.
The IMF also projected South Korea's economy to expand by 1.8 percent in 2026, driven by easing uncertainties and continued accommodative policies.
However, Anand warned of persistent downside risks including global trade protectionism, geopolitical tensions, and financial market volatility that could adversely affect South Korea's export-driven economy.
In addition to near-term growth support, the IMF emphasized the need for South Korea to accelerate structural reforms to address long-term fiscal sustainability challenges posed by an aging population and rising spending pressures.
"To create fiscal space for long-term spending pressures from aging, structural fiscal reforms—reforming the pension system, mobilizing revenue, enhancing expenditure efficiency—remain essential," Anand said.
He further highlighted the importance of reforms aimed at narrowing the productivity gap between small and medium-sized enterprises and larger firms, harnessing innovation and artificial intelligence (AI) transformation, and improving capital allocation to achieve the government's 3 percent growth target.
The IMF welcomed the South Korean government's proposed 8.1 percent increase in the 2026 budget to 728 trillion won ($521 billion), the steepest annual rise in national spending, but cautioned that the national debt-to-GDP ratio is expected to exceed 50 percent for the first time in history, reaching 51.6 percent in 2026.
"Adopting a credible medium-term fiscal anchor, supported by an enhanced medium-term fiscal framework, would help safeguard long-term fiscal sustainability," Anand added.
The IMF mission's visit to South Korea took place from September 11 to 24, 2025, concluding with the press briefing in Seoul.
These findings and recommendations come amid South Korea's efforts to stimulate economic growth through fiscal stimulus and technological innovation, including AI, while managing demographic and external challenges.
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