Korea's GDP expected to maintain modest growth until 2028

Promotional banners for loans are hung in front of a bank in Seoul. [YONHAP]

A state-run research institute projected Korea’s economic growth at 2 percent next year as a slowdown in the overall consumption and investment in the construction sector will weigh in for the coming months.

The Korea Institute for Industrial Economics & Trade, a research body under the Ministry of Trade, Industry & Energy, said Monday that unfavorable macroeconomic conditions such as inflation and high interest rates will eclipse improved exports and facility investment in Korea.

The trend of modest economic growth will likely run through 2028, according to the International Monetary Fund (IMF).

Korea's economy is expected to maintain a growth trajectory range between 2.1 percent and 2.3 percent until 2028, an IMF report showed Sunday.

According to its annual Article IV consultation report for Korea, the IMF predicted the country's real gross domestic product (GDP) rate to reach 2.2 percent in 2024 from a projected 1.4 percent growth this year.

The IMF forecast Korea's GDP to grow 2.3 percent in 2025, followed by 2.2 percent increases both in 2026 and 2027. The Washington-based lender expected a 2.1 percent GDP growth in 2028.

The projections may change as they did not take into account factors involving China's economic recovery.

Furthermore, the IMF has estimated Korea's potential output rate to reach 2.1 percent this year, 2.2 percent in both 2024 and 2025, and 2.1 percent in 2026 to 2028.

Potential output refers to the maximum growth rate a country can achieve by mobilizing all factors of production, including labor, capital and resources, without causing inflation.

The IMF's inflation forecast for Korea has been revised upward from the previous 3.4 percent to 3.6 percent for this year.

Additionally, the forecast for next year has been adjusted upward from the initial 2.3 percent to 2.4 percent.

The report said the IMF's executive directors welcomed the Korean economy's resilience, supported by the authorities' effective policy response.

Still, structural reforms are important for boosting productivity growth in the face of demographic headwinds, the report added.

BY PARK EUN-JEE, YONHAP [park.eunjee@joongang.co.kr]