South Korea’s economy is facing mounting pressure from political uncertainty and global trade tensions, prompting the International Monetary Fund (IMF) to call for urgent structural reforms to unlock future growth.
An IMF team led by Mission Chief Rahul Anand concluded its Article IV Consultation with Korean authorities on September 24. The team found that while inflation remains near the 2 percent target, growth has slowed significantly in 2025. GDP is projected to expand by just 0.9 percent this year before rebounding to 1.8 percent in 2026, helped by accommodative fiscal and monetary policies, stronger domestic demand, and robust global demand for semiconductors.
Mr. Anand noted that South Korea’s policy response so far has been appropriate, with monetary easing and fiscal measures cushioning short-term growth. However, he warned that achieving the government’s 3 percent growth target would require advancing long-delayed structural reforms to raise productivity, tackle demographic headwinds, and improve capital allocation.
“Revitalizing domestic demand and diversifying Korea’s export structure will be essential for more resilient growth,” Anand said. He highlighted the importance of household deleveraging, labor market reforms, and expanding service exports, alongside investments in artificial intelligence (AI) and innovation.
The IMF welcomed Korea’s new Economic Growth Strategy, which emphasizes AI adoption, digital transformation, and boosting service exports. The mission also praised ongoing corporate governance and foreign exchange market reforms, saying they could help attract long-term investment and reduce the so-called “Korea discount” in financial markets.
On fiscal policy, the IMF recommended that once growth stabilizes, the government should return to consolidation to create space for long-term pressures from an aging population. Reforms to the pension system, improved revenue mobilization, and enhanced expenditure efficiency were cited as priorities. Adopting a credible medium-term fiscal framework would also strengthen sustainability.
The IMF team further urged continued vigilance in the financial sector, pointing to the need to curb risky household loan growth and address vulnerabilities in real estate project financing. It also stressed that foreign exchange interventions should remain limited to preventing disorderly market conditions.
Despite headwinds, the IMF said Korea’s strengths including strong institutions, robust external demand for semiconductors, and opportunities in AI, provide a platform for recovery. But without decisive reforms, growth risks remain tilted to the downside.
The mission concluded by thanking Korean authorities and stakeholders for “productive discussions, excellent support, and generous hospitality.”
