Seoul: The International Monetary Fund (IMF) on Tuesday sharply downgraded its growth forecast for South Korea's economy to 1 percent for 2025, citing heightened global economic uncertainty stemming from newly imposed U.S. tariff measures.
According to Yonhap News Agency, the IMF cut its projection for Asia's fourth-largest economy by 1 percentage point from its previous estimate released in February. The outlook for 2026 was also revised downward by 0.7 percentage point to 1.4 percent. The IMF highlighted the swift escalation of trade tensions and high levels of policy uncertainty as key factors expected to impact global economic activity significantly.
South Korea has been grappling with political instability following former President Yoon Suk Yeol's impeachment, which followed his martial law decree in December. Economic conditions further deteriorated after the Donald Trump administration imposed reciprocal tariffs on major trading partners, affecting South Korea's export-driven growth.
The revised forecast for the South Korean economy is more pessimistic than estimates issued by the South Korean government and other major economic institutions. The Seoul government earlier projected 1.8 percent growth for this year, while the Organization for Economic Cooperation and Development (OECD) and the Bank of Korea (BOK) forecast a 1.5 percent expansion.
The IMF noted that the unpredictability of the U.S. tariff scheme has a negative impact on economic activity and the outlook. It also makes it more challenging to make assumptions that would support a consistent and timely set of projections. The IMF urged the international community to work collaboratively to ensure a stable and predictable trade environment, facilitate debt restructuring, and tackle shared global challenges.
The report also emphasized the importance of addressing domestic policy and structural imbalances to ensure internal economic stability. This approach aims to rebalance the trade-off between growth and inflation, rebuild policy buffers, and revitalize medium-term growth prospects while reducing global imbalances.
Meanwhile, the IMF revised down its global growth forecast to 2.8 percent for 2025, a 0.5 percentage point cut from its earlier projection.