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IMF Executive Board Concludes 2023 Article IV Consultation with Republic of Korea
IMF
2023.12.05
The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with the Republic of Korea.

Like many other advanced economies, Korea has faced challenges from inflation and a growth slowdown. Growth declined from mid-2022, as global demand for electronics waned and domestic demand weakened, but has started to recover in recent quarters. Headline inflation has declined significantly after peaking in mid-2022, though core inflation has remained stickier. Pockets of financial sector vulnerability have emerged amid higher interest rates and declining housing prices. Swift policy measures have helped to stabilize financial and housing markets, and financial risks, while having increased, appear to remain manageable.

The Korean economy is expected to strengthen amid a gradual recovery of global semiconductor demand, a strong domestic labor market, and ongoing stabilization of the housing market. Growth is projected to reach 1.4 percent for 2023 and 2.2 percent in 2024. The slowdown in growth of main trading partners and higher-for-longer global interest rates act as a drag on near-term growth, while stronger-than-previously-envisaged growth prospects of the Chinese economy are expected to help mitigate impacts on Korean exports. Despite a temporary rebound in recent months, inflation is projected to continue moderating and approach the authorities’ 2 percent target by end-2024.

The economic outlook is subject to a high degree of uncertainty, with risks tilted to the downside. Near-term growth prospects critically depend on the strength of the rebound of the semiconductor cycle and China’s demand for Korean exports of goods and services. Main risks also include weaker growth and tighter monetary policy in major economies, heightened commodity price volatility, resurgence of global banking turmoil, reduced trust in domestic non-bank financial institutions, and a renewed domestic real-estate sector downturn. Moreover, Korea is vulne