OECD downgrades South Korea's 2025 growth forecast

The Organization for Economic Cooperation and Development (OECD) has lowered its 2025 growth forecast for South Korea to 2.1%, according to Seoul's finance ministry on Wednesday.

The latest figure marks a 0.1 percentage-point fall from its earlier projection presented in September, the ministry said, citing the latest report by the organization, News.Az reports, citing Yonhap.

The OECD's projection, however, remains slightly more optimistic than recent estimates from both domestic and international institutions.

It exceeds the International Monetary Fund's growth forecast of 2 percent for Asia's fourth-largest economy and surpasses the Bank of Korea (BOK)'s outlook of 1.9 percent.

The OECD report noted that resilient global demand is expected to support South Korea's exports, while falling interest rates and rising real wages may boost private consumption starting this year.

"For 2025, the benchmark interest rate is projected to decline to 2.5 percent, with inflation returning to the target level of 2 percent. Additionally, the fiscal deficit, which widened in 2023 and 2024, is expected to partially recover, enabling fiscal consolidation," the ministry said, citing the OECD's findings.

South Korea's policy rate currently stands at 3 percent after the BOK delivered two consecutive rate cuts since October to slash the key rate by a combined half a percentage point.

Consumer prices, a key gauge of inflation, increased at below the BOK's 2 percent target rate for the third consecutive month in November.

As major challenges to the global economy, the organization mentioned geopolitical risks and the subsequent trade tensions, low growth potential and excessive volatility in the financial market over the course of easing inflation.

The OECD issued specific recommendations for South Korea, emphasizing the need for pension reform to manage fiscal burdens amid rapid population aging. The organization also noted foreign workers may help address the country's labor shortages.

News.Az