Press Release No. 25/30

IMF Executive Board Concludes 2024 Article IV Consultation with Republic of Korea

February 6, 2025

Washington, DC: On February 5, 2025, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation[1] with the Republic of Korea.

Strong economic fundamentals and sound macroeconomic policies have helped the Korean economy navigate through multiple shocks in recent years. Economic growth has recovered from a sharp slowdown in 2023, inflation has reached the target, and financial stability risks have decreased. The authorities’ swift policy responses to contain inflation and financial stability risks, have contributed to stabilize the economy and reduce vulnerabilities.

The Korean economy is expected to be in broad balance in 2025, with growth reaching potential and inflation near target. Real GDP growth is estimated to have reached 2.2 percent in 2024, supported by strong exports despite relatively weak domestic demand. As domestic demand strengthens gradually and export growth normalizes, growth is expected to moderate toward the trend of about 2 percent in 2025. Inflation declined to 1.9 percent in December 2024, reflecting the unwinding of global supply chain frictions, lower global oil prices, and the restrictive monetary policy setting. It is projected to stay close to the Bank of Korea’s target of 2 percent in 2025 as output gap closes. The current account surplus significantly improved in 2024 driven by recovering global semiconductor demand. It is expected to normalize in 2025 as export growth moderates and import growth picks up in light of strengthening domestic demand.

Uncertainty around the outlook remains high and risks are tilted to the downside. Downside risks have increased amid high uncertainty from policy shifts in major trading partners, recent domestic political developments, softening global semiconductor demand, higher global commodity price volatility, and intensification of geopolitical conflicts.

Executive Board Assessment[2]

Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities for their prompt and decisive policy responses to contain inflation and financial stability risks. Directors noted that downside risks have increased amid heightened uncertainty from policy shifts in major trading partners and recent domestic political developments. They concurred that near‑term policies should focus on rebuilding buffers and preserving macroeconomic stability. Directors underscored that advancing structural reforms will be key to boost the growth potential and enhance resilience against long‑term challenges.

Directors welcomed the ongoing normalization of monetary policy and agreed that monetary policy should remain agile and clearly communicated going forward. They suggested that foreign exchange interventions should remain limited to preventing disorderly market conditions.

Directors supported the planned fiscal consolidation in the 2025 budget. They highlighted that meeting long‑term aging‑related spending in a fiscally sustainable way will require a more ambitious medium‑term consolidation. Directors encouraged expediting fiscal reforms to address aging‑related spending pressures, including pension reforms, adopting a fiscal rule, and increasing revenue mobilization and expenditure rationalization, including of energy subsidies. Additional support to the vulnerable could be considered if downside risks materialize.

Noting that financial stability risks remain manageable, Directors recommended closely monitoring and standing ready to act proactively to address financial vulnerabilities in the real estate sector, including related to project financing and asset quality in Non‑Bank Financial Institutions. The authorities should stand ready to further tighten macroprudential policies, complemented with measures to improve housing supply to contain housing market risks.

Directors called for comprehensive reforms to boost growth potential. Noting the declining labor force and rapid aging as key challenges, they recommended improving youth income, increasing female labor force participation, and attracting foreign talent. Directors welcomed the recently introduced FX and capital market reforms and encouraged the authorities to continue efforts to improve capital allocation by strengthening the resilience of financial institutions and reducing risks from private debt. They also suggested improving allocative efficiency in services and SMEs, increasing labor and product market flexibility, and leveraging the revolution of Artificial Intelligence (AI) to boost productivity.

Directors underscored the importance of reforms to enhance resilience. They recommended boosting innovation, streamlining regulation, diversifying exports and supply chains, and promoting service exports to navigate the evolving global trade landscape. They highlighted the need for targeted policies to prepare for AI adoption and to protect vulnerable groups. Directors welcomed Korea’s ambitious climate change mitigation objectives and encouraged aligning climate policies with emission targets.

It is expected that the next Article IV consultation with the Republic of Korea will take place on the standard 12‑month cycle.

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.