IMF Lowers South Korea's Growth Forecast from 2.2% to 2.0%... "Global Economic Downside Risks Increase"

EPA Yonhap News

The International Monetary Fund (IMF) has downgraded South Korea's economic growth forecast for this year from 2.2% to 2.0%. The global economic growth forecast for this year was raised to 3.3%, reflecting an upward revision for the United States. However, the IMF identified risks such as the expansion of protectionism and expansionary fiscal policies by the new U.S. administration, diagnosing that most countries, excluding the U.S., face significant downside risks to their economies.

In the "January World Economic Outlook" released on the 17th (local time), the IMF projected South Korea's growth rate for this year at 2.0%, down 0.2% from the previous forecast in October. The growth forecast for next year was adjusted down by 0.1 percentage points to 2.1%, compared to the October forecast of 2.2%.

Earlier, in November last year, following the annual consultation with South Korea, the IMF had lowered the growth forecast for this year to 2.0%, citing significant downside risks.

In this report, the IMF raised the global economic growth forecast by 0.1 percentage points from the previous outlook to 3.3%. The growth forecast for next year remains unchanged at 3.3%. This level is lower than the 3.7% average annual growth rate from 2000 to 2019.

The IMF explained, "Despite the slowdown in Eurozone growth, the upward revision of the U.S. growth forecast led to an increase in the global growth outlook." It also noted that the upward adjustment in U.S. growth offsets downward revisions in other major economies, resulting in widening regional growth disparities.

The U.S. growth rate for this year is projected at 2.7%, 0.5 percentage points higher than the October forecast. The IMF cited strong underlying demand in the U.S., less restrictive monetary policy, and favorable fiscal conditions.

The Eurozone's growth forecast was lowered by 0.2 percentage points from October to 1.0%. The IMF diagnosed that ongoing geopolitical conflicts continue to weigh on economic sentiment. Japan's forecast remains unchanged at 1.1%.

Emerging and developing economies are expected to grow by 4.2%, the same as the October forecast. For China, reflecting the government’s stimulus measures announced in November last year, the growth forecast for this year was raised by 0.1 percentage points to 4.6% compared to October.

The IMF assessed that downside risks dominate the global economy excluding the U.S. It pointed to the expansion of protectionism, expansionary fiscal policies, and immigration policies by the new U.S. administration as risk factors.

The IMF warned, "While expansionary fiscal policies and deregulation may have positive short-term effects on U.S. economic growth, they could lead to rising global bond yields and capital outflows from emerging markets in the medium to long term, posing threats to the global economy."

Due to increased uncertainty over trade policies, the IMF adjusted the global trade growth forecast for this year down to 3.2% from 3.4% in October. Global inflation is expected to decline to 4.2% in 2025 and 3.5% in 2026.

The IMF cautioned that unilateral policies that distort competition, such as tariffs, non-tariff barriers, and subsidies, rarely lead to sustained improvements in domestic economic conditions. Instead, they harm trading partners, provoke retaliation, and can worsen conditions for all countries involved.

This content was produced with the assistance of AI translation services.