Trade concerns weigh on South Korea as IMF lowers economic growth forecast for next two years

The International Monetary Fund (IMF) has lowered its forecast for economic growth in South Korea, pointing out that the country, which relies on exports, is facing increasingly negative factors, reflecting growing concerns among economists. IMF Resident Representative Rahul Anand announced in Seoul on Wednesday that the organization has revised down its forecast for South Korea's economic growth from 2.2% in 2025 to 2%, stating, "The uncertainty of the outlook remains high, with risks tilted to the downside." The IMF also lowered its growth forecast for 2024 from 2.5% to 2.2%. Following a meeting with government officials in Seoul, Anand said at a press conference that risks facing South Korea include a slowdown in trade partners, geopolitical tensions, and a rise in commodity prices due to conflicts in the Middle East. The IMF official mentioned that it is too early to speculate on the impact of a second term for President Trump on South Korea's economic growth. The incoming US President will take office in January next year, but his tariff policies have already undermined economists' confidence in South Korea's future export momentum. Hyosung Kwon from Bloomberg Economics stated in an earlier report, "Trump's policies could threaten South Korea's exports, providing a strong rationale for larger and earlier rate cuts to support the economy." While the South Korean central bank is expected to keep its interest rate at 3.25% unchanged at next week's policy meeting, Bloomberg Economics projects that by the end of 2025, the central bank will cut interest rates four times, bringing them down to 2.25%. This forecast is more dovish than the three rate cut expectations of other private economists in a survey earlier this month. Bloomberg Economics also predicts a further 25 basis point rate cut in the first quarter of 2026, dropping the rate below neutral levels, indicating a clear focus on economic growth. In another report earlier this month, Bloomberg Economics estimated that if Trump imposes a 60% tariff on Chinese goods and a 20% tariff on goods from other regions, South Korea's exports to the US could fall by 55% by 2028. The President-elect views the trade deficit with other countries, including South Korea as one of the significant issues that need to be addressed. Kim Jong Hwa, a member of the South Korean central bank's board of directors, stated on Tuesday that the outcome of the US election increased uncertainty for policymakers. He declined to comment on the central bank's decision in November, but indicated that the exchange rate level would be a factor in overall policy decision-making. Anand expressed that the gradual normalization of the South Korean central bank's policy is "appropriate," and the monetary easing policy implemented last month will help boost the economy, including private spending. He stated, "In a continuously changing domestic and global environment, strong economic policies are needed to enhance resilience. Revitalizing growth and enhancing adaptability to the evolving global landscape remain key priorities."