Republic of Korea: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Korea

2024ARTICLE IV CONSULTATION—PRESS RELEASE;STAFF REPORT; AND STATEMENT BY THE EXECUTIVEDIRECTOR FORTHE REPUBLIC OF KOREA Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussionswith members, usually every year. In the context of the2024Article IV consultation withthe Republic of Korea, the following documents have been released and are included inthis package: •APress Releasesummarizing the views of the Executive Board as expressed during itsFebruary5, 2025consideration of the staff report that concluded the Article IVconsultation withthe Republic of Korea. •TheStaff Reportprepared by a staff team of the IMF for the Executive Board’sconsideration onFebruary 5, 2025, following discussions that ended onJanuary 6,2025, with the officials ofthe Republic of Koreaon economic developments andpolicies. Based on information available at the time of these discussions, the staffreport was completed onJanuary21, 2025. •AnInformational Annexprepared by the IMFstaff. •AStatement by the Executive Directorforthe Republic of Korea. The document listed below hasbeen or will be separately released. Selected Issues TheIMF’s transparency policy allows for the deletion of market-sensitive information andpremature disclosure of the authorities’ policy intentions in published staff reports andother documents. Copies of this report are available to the public from International Monetary Fund•Publication ServicesPO Box 92780•Washington, D.C. 20090Telephone: (202) 623-7430•Fax: (202) 623-7201E-mail:publications@imf.org Web:http://www.imf.org International Monetary FundWashington, D.C. IMF Executive Board Concludes2024Article IV ConsultationwithRepublic of Korea FOR IMMEDIATE RELEASE Washington, DC–February7, 2025:On February 5, 2025, the Executive Board of theInternational Monetary Fund (IMF) concluded theArticle IV consultation1withtheRepublic of Korea. Strong economic fundamentals and sound macroeconomic policies have helped theKorean economy navigate through multiple shocks in recent years. Economic growth hasrecoveredfrom a sharp slowdown in 2023, inflation hasreachedthetarget, and financialstability risks have decreased.The authorities’ swift policy responses to contain inflationand financial stability risks, have contributed to stabilize the economy and reducevulnerabilities. The Korean economy is expected to be in broad balance in 2025, with growth reachingpotential and inflation near target.Real GDP growthis estimated tohavereached2.2percent in 2024,supported by strongexports despiterelatively weak domestic demand.As domestic demand strengthens gradually and export growthnormalizes, growth isexpected to moderate towardthetrend of about 2 percent in 2025.Inflationdeclined to1.9 percent in December 2024, reflectingthe unwinding of global supply chain frictions,lower global oil prices, and the restrictive monetary policy setting.Itis projected to stayclose totheBank of Korea’starget of 2 percentin 2025as output gap closes.Thecurrentaccount surplussignificantlyimproved in2024driven byrecovering globalsemiconductordemand.It isexpected to normalize in 2025as export growth moderatesand importgrowth picks up in light ofstrengtheningdomestic demand. Uncertaintyaroundthe outlook remains high and risks are tilted to the downside.Downside risks have increasedamid high uncertainty from policy shifts in major tradingpartners,recent domestic political developments, softening global semiconductordemand, higher global commodity price volatility, and intensification of geopoliticalconflicts. Executive Board Assessment2 Executive Directors agreed with the thrust of thestaff appraisal. They commended theauthorities for their prompt and decisive policy responses to contain inflation andfinancial stability risks. Directors noted that downside risks have increased amidheightened uncertainty from policy shifts in major trading partners and recent domesticpolitical developments. They concurred that near-term policies should focus on rebuildingbuffers and preserving macroeconomic stability. Directors underscored that advancingstructural reforms will be key to boost the growth potential and enhance resilienceagainst long-term challenges. Directors welcomed the ongoing normalization of monetary policy and agreed thatmonetary policy should remain agile and clearly communicated going forward. Theysuggested that foreign exchange interventions should remain limited to preventingdisorderly market conditions. Directors supported the planned fiscal consolidation in the 2025 budget. They highlightedthat meeting long-term aging-related spending in a fiscally sustainable way will require amore ambitious medium-term consolidation. Directors encouraged expediting fiscalreforms to address aging-related spending pressures, including pension reforms,adopting a fiscal rule, and increasing revenue mobilization and expenditurerationalization, including of energy subsidies. Additional support to the vulnerable couldbecon