OECD Lowers South Korea's 2025 Growth Projection to 2.1%

Shipping containers are seen stacked at a port in Busan, showcasing the vital role of shipping in South Korea's economy. On Wednesday, the Organization for Economic Cooperation and Development (OECD) made a pivotal announcement, reducing its growth forecast for South Korea's economy in 2025 to 2.1 percent. This information was relayed by Seoul's finance ministry.

This new projection signifies a slight decline of 0.1 percentage points from the previous estimate shared in September. Nonetheless, the OECD's outlook still presents a more positive perspective compared to the recent forecasts from both national and international financial institutions. For example, the International Monetary Fund has estimated a growth rate of 2 percent, while the Bank of Korea anticipates an even lower 1.9 percent growth.

The OECD's report highlighted that South Korea's exports are expected to receive a boost from resilient global demand. In addition, the organization indicated that falling interest rates and increasing real wages could enhance private consumption starting this year.

According to the OECD, by 2025, the benchmark interest rate in South Korea is expected to drop to 2.5 percent, as inflation is anticipated to stabilize back to the target level of 2 percent. Furthermore, the fiscal deficit, which has widened in the years 2023 and 2024, is projected to partially recover, paving the way for fiscal consolidation.

Currently, Korea's policy rate stands at 3 percent, following two consecutive cuts by the Bank of Korea. These actions reduced the key rate by a total of half a percentage point since October. Additionally, consumer prices, which serve as a critical indicator of inflation, have risen below the Bank of Korea's 2 percent target rate for three consecutive months as of November.

The OECD identified several significant challenges facing the global economy, including geopolitical risks, trade tensions, low growth potential, and high volatility within financial markets amid easing inflation.

In its report, the OECD also provided specific recommendations for South Korea. It emphasized the urgent need for pension reform to manage the increasing fiscal pressures resulting from rapid population aging. Furthermore, the organization suggested that employing more foreign workers could help alleviate the country's labor shortages.

OECD, Growth, Economy