The International Monetary Fund (IMF) projected South Korea's economic growth rate this year at 2.0%, the same as last month. However, it assessed that the downward risks are significant due to the changes in the new U.S. administration's policies and ongoing domestic political uncertainties.
The IMF announced this through the '2024 Korea Annual Consultation Report' on the 7th. This report was prepared based on annual consultations conducted by the IMF Korea mission team with major government departments and related institutions, including the Ministry of Strategy and Finance and the Bank of Korea, from Nov. 7 to 20 last year.
The IMF maintained its economic growth rate for this year at 2.0%, the same as the potential growth rate. This is identical to the growth rate presented during last month's World Economic Outlook (WEO) release. This rate is higher than the projections from the government (1.8%) and the Bank of Korea (1.9%), as well as the estimate from the international credit rating agency Fitch (1.7%).
The IMF evaluated that the South Korean economy showed signs of recovery this year due to the strong performance of semiconductor exports, compared to a growth of just 1.4% in 2023. It diagnosed that strong exports alongside moderate recovery in private consumption and investment will continue this year.
The inflation rate, which recorded 2.4% last year, is expected to gradually stabilize and reach the price stability target of 2%. The current account surplus, which expanded to 4.2% of Gross Domestic Product (GDP) last year, is projected to stand at 3.6% this year, influenced by the increase in imports due to consumption recovery.
The IMF assessed that the downward risks for South Korea's economy are dominant this year. Specifically, it identified risk factors such as continued political uncertainties, changes in the new U.S. administration's policies, weak semiconductor demand, sluggish economic performance from key trading partners, and escalating geopolitical conflicts.
The IMF recommended a policy response of lowering interest rates. Given the current high expected inflation and financial stability risks, it suggested that a gradual normalization of the currency policy is necessary. Additionally, it proposed further financial support for vulnerable groups, hinting at the need for a supplementary budget.
Meanwhile, the IMF analyzed that the results of the stress tests indicate South Korea's foreign exchange reserves are at a level sufficiently capable of responding to external shocks. It also assessed that the recently expanded net international investment position (NIIP), which increased to 43.9% of GDP, is a crucial element supporting external soundness.