IMF halves Korea's growth forecast to 1% as instability persists

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IMF halves Korea's growth forecast to 1% as instability persists

Published: 22 Apr. 2025, 22:01

Audio report: written by reporters, read by AI

International Monetary Fund (IMF) Managing Director Kristalina Georgieva speaks ahead of the IMF/World Bank Spring Meetings at the IMF headquarters in Washington on April 17. [YONHAP/REUTERS]

The International Monetary Fund (IMF) sharply cut its forecast for Korea’s economic growth this year, halving it from 2 percent to 1 percent, citing growing global uncertainty driven by U.S. trade policies. The revised figure was announced Tuesday in the IMF’s April edition of the World Economic Outlook.

The IMF releases its global outlook four times a year — in January, April, July and October. The latest downward revision is Korea’s steepest cut among major international forecasts so far. Back in January, the IMF had projected Korea’s GDP to grow by 2 percent. The new estimate of 1 percent places Korea near the bottom among the 18 highlighted nations, tied with South Africa to rank sixth lowest overall. Only Mexico and Thailand saw larger downward revisions.

While the IMF did not detail its rationale for Korea’s downgrade, the Ministry of Economy and Finance said the revision appears to reflect the growing political instability since last December. Additionally, the IMF lowered its global growth forecast from 3.3 percent to 2.8 percent, which is interpreted to have significantly impacted Korea due to the heavy reliance on exports for a small, open economy.

The downgrade was also shaped by an increasingly uncertain global trade environment fueled by the U.S. administration’s aggressive tariff policies. As of April 4 — the IMF’s cut-off date for its assessment — Washington was imposing 25 percent tariffs on steel, aluminum and automobiles across all trade partners. Plans for a new two-tiered tariff system were also being floated, including a 10 percent base tariff and country-specific surcharges.

The IMF noted that if the cut-off date had been moved to April 2 — before the United States announced its “reciprocal tariff” framework — global growth could have been projected at 3.2 percent instead of 2.8 percent.

Reflecting these dynamics, the IMF also downgraded the growth forecast for China from 4.6 percent to 4 percent. Despite implementing large-scale fiscal spending policies, the IMF believes these efforts have fallen short of offsetting the negative impact of being a primary target of the U.S. government’s tariff measures.

The projection for the United States was lowered from 2.7 percent to 1.8 percent as well. The IMF pointed to the uncertainty of the trade policy, which is seen as dampening consumption and delaying economic recovery.

The IMF said that risks to the global economy are concentrated on the downside. The key risk factors include reduced consumption and investment due to rising policy uncertainty, such as trade conflicts; limited fiscal and monetary policy flexibility caused by high interest rates and debt levels; and volatile financial and currency markets, with the potential for asset price corrections.

Still, the IMF noted that if the United States softens its tariff policies, these risks could shift toward the upside.

To stabilize the global outlook, the IMF urged restraint in industrial subsidies and called for an expansion of regional and multilateral trade agreements to prevent fragmentation. It also recommended maintaining prudent monetary policy that balances financial market stability with inflation expectations and emphasized sound fiscal management.

In response to rising capital flow volatility, the IMF advised country-specific measures aligned with financial and currency market maturity, such as targeted interventions and macroprudential policies.

For the longer term, the IMF stressed the need for reforms to restore growth potential, including increased participation of women and the elderly in the labor force, investments in AI and digital technologies and regulatory reform.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.

BY KIM MIN-JOONG [[email protected]]