IMF cuts South Korea’s growth outlook as trade headwinds grow

THE International Monetary Fund lowered its forecast for South Korea’s economic growth, pointing to rising headwinds facing the export-reliant nation and echoing growing concerns among economists.

“Uncertainty around the outlook remains high and risks are tilted to the downside,” Rahul Anand, chief of the Korea mission, said on Wednesday (Nov 20) in Seoul as he announced the IMF pared back its forecast for South Korea’s economic growth to 2 per cent from 2.2 per cent in 2025. The IMF also reduced its growth projection for 2024 to 2.2 per cent from 2.5 per cent. The revised numbers are in line with Bloomberg estimates.

Risks for South Korea include a slowdown among trading partners, geo-economic tensions and rising commodity prices due to Mideast conflicts, Anand said in a press briefing following his meetings with government officials in Seoul.

The IMF official said it’s too early to speculate on the impact of Donald Trump’s second administration on South Korea’s economic growth. The US president-elect will take office in January, but his tariff policies have already dented economists’ confidence in South Korea’s future export momentum.

“Trump’s proposed policies are likely to threaten South Korea’s exports,” Hyosung Kwon of Bloomberg Economics (BE) said earlier in a report. “This would create a strong case for deeper interest-rate cuts – and sooner – to support the economy.”

While the Bank of Korea (BOK) is expected to hold its rate unchanged at 3.25 per cent when it meets for a policy decision next week, BE projects four rate cuts to bring the rate to 2.25 per cent by the end of 2025. That’s a faster pace of easing compared with the three reductions expected by other private economists in a Bloomberg survey published earlier this month.

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BE also sees an additional quarter-point reduction in the first quarter of 2026, sending the rate below a neutral level in a clear indication of policy focus on economic growth.

In a separate report earlier this month, BE estimated that South Korea’s exports to the US could fall as much as 55 per cent by 2028, if Trump imposes tariffs of 60 per cent on Chinese goods and 20 per cent on items from the rest of the world.

The president-elect sees US trade deficits with other nations as a major concern to be addressed, and South Korea is among the top ten nations with the largest gains against the US.

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BOK board member Kim Jong Hwa said on Tuesday that the outcome of the US election increases uncertainties for policymakers. He declined to comment on the BOK’s November decision, but said that how currency levels impact the country as a whole will be a factor in policy decisions in general.

Anand said a gradual policy normalisation by the BOK is “appropriate”, and that monetary easing that began last month would help boost the economy including private spending.

“Strong economic policies are needed to enhance resilience in a changing domestic and global environment,” he said. “Reinvigorating growth and building resilience to the changing global landscape remain key priorities.” BLOOMBERG