An Asia-based economic surveillance organization has projected that South Korea's economy will expand by 1.9 percent next year, supported by growth momentum that began earlier this year. The assessment came in a report following its annual consultation with the South Korean government this month. Growth is expected to accelerate from 1 percent in 2025.
The ASEAN+3 Macroeconomic Research Office (AMRO), based in Singapore, projected on December 19 that South Korea's economy will grow by 1 percent in 2025 before accelerating to 1.9 percent in 2026. This rebound is underpinned by recovering private consumption and resilient exports, continuing steadily since the June presidential election that brought in a more proactive administration.
"(South) Korea's economy is rebounding in 2025, underpinned by a recovery in private consumption and resilient exports," said Kian Heng Peh, who led the consultation team. Inflation has stayed close to the Bank of Korea's 2 percent target, aided by stable food prices and subdued global energy costs, though service prices have risen due to higher input costs.
Looking ahead, headline inflation is forecast to average 2.1 percent in 2025 and ease to 1.9 percent in 2026. However, the external sector faces challenges from the Korean won's depreciation against the U.S. dollar amid net capital outflows. South Korea's deep integration into global supply chains, particularly semiconductors, is a strength but exposes it to risks from trade disputes and geopolitical tensions.
Domestic vulnerabilities include potential abrupt corrections in Seoul's housing market, exposures of smaller regional savings banks to impaired project finance loans, and a shrinking labor force in the medium term, AMRO noted. It recommends sustaining the recovery and building resilience through calibrated policies, deeming the current monetary stance appropriate and next year's fiscal budget broadly suitable.
In the medium to long term, strengthening manufacturing resilience and addressing demographic challenges are essential. AMRO, established in 2011, promotes macroeconomic and financial stability across ASEAN and its partners South Korea, China, and Japan.
Concerns over foreign exchange reserves are unfounded despite a US$350 billion investment pledge tied to U.S. tariff reductions, with reserves remaining ample, said senior economist Dong He.
