OECD Downgrades South Korea's 2025 Growth Forecast to 2.1 Percent

By Kim Han-joo

SEOUL, Dec. 4 -- The Organization for Economic Cooperation and Development (OECD) has revised its growth forecast for South Korea's economy in 2025, lowering it to 2.1 percent, according to a statement from Seoul's finance ministry on Wednesday.

This new projection represents a decline of 0.1 percentage points from the OECD's previous estimate presented in September. Despite the adjustment, the OECD remains slightly more optimistic compared to recent forecasts from both local and global institutions.

The OECD's new outlook is more favorable than the International Monetary Fund's (IMF) prediction of 2 percent for the world’s fourth-largest economy, and it surpasses the Bank of Korea's (BOK) forecast of 1.9 percent.

In its report, the OECD indicated that sustained global demand is expected to bolster South Korea's export sector. Additionally, decreasing interest rates and increasing real wages are likely to enhance private consumption starting this year.

According to the OECD's findings, by 2025, the benchmark interest rate in South Korea is anticipated to drop to 2.5 percent, while inflation is projected to stabilize at around the target level of 2 percent. Furthermore, after widening in 2023 and 2024, the fiscal deficit is expected to show signs of recovery, allowing for some fiscal consolidation.

The current policy rate in South Korea stands at 3 percent, following two consecutive cuts by the BOK since October, which collectively reduced the rate by half a percentage point.

In November, consumer prices continued to rise below the BOK's inflation target of 2 percent for the third month in a row.

The OECD report also addressed significant challenges facing the global economy, such as geopolitical risks and ongoing trade tensions, as well as low growth potential and the high volatility of financial markets during this period of easing inflation.

In light of these conditions, the OECD has put forth specific recommendations for South Korea. Among these is the urgent need for pension reforms to manage the fiscal strain caused by the rapid aging of the population. The OECD also highlighted the potential of foreign workers to mitigate the labor shortages that the country faces.

OECD, SouthKorea, Economy