The ASEAN+3 Macroeconomic Research Office (AMRO)[1] released its 2024 Annual Consultation Report on Korea on March 21^st (Friday). This report is based on the annual consultations conducted in November 2024 when the AMRO mission team visited Korea and held discussions with government ministries and relevant institutions, including the Ministry of Economy and Finance and the Bank of Korea.

AMRO projected that the Korean economy will grow by 1.6% in 2025, down 0.4%p from 2.0% in 2024; while domestic demand is expected to recover, the growth forecast has been lowered due to expected impact of factors such as the U.S. government’s tariff imposition. The inflation rate is expected to decline to 1.9%, down by 0.4%p from 2.3% in 2024, reflecting stable domestic food prices and a moderation in global energy prices.

Also, AMRO citied escalating geopolitical conflicts in the Middle East and Ukraine, as well as rising energy and food prices stemming from extreme weather conditions, as upside risks to inflation. As downside risks to growth, AMRO pointed to a sudden slowdown in economic growth in major economies such as the U.S., Europe, and China, a sharp increase in U.S. tariffs, and weakened business and consumer sentiment owing to domestic political uncertainties. Along with it, it noted the debt servicing ability of SMEs, small merchants, self-employed business operators, and low-income households, which reflects the scarring effects of the COVID-19 pandemic, as well as real estate project financing (PF) held by non-bank financial institutions (NBFI) as risk factors.

AMRO assessed that the recent easing of the tight monetary policy in Korea will contribute to the recovery in domestic demand. In addition, it highly evaluated the Korean government’s efforts to ensure a soft landing for real estate PF projects, while recommending enhanced risk management for NBFIs.

With regard to fiscal policy, AMRO emphasized the importance of securing fiscal sustainability to step up the ability to respond to economic uncertainties. In particular, it was mentioned that fiscal discipline should be strengthened through the legalization of fiscal rules, and efforts to implement revenue-enhancing and spending-restructuring measures are essential.

Last but not least, AMRO stressed the need to bolster the resilience and dynamism of the manufacturing sector, as well as addressing structural issues – devising countermeasures to demographic changes such as low birth rates and implementing reforms in pensions and health insurance.

The Korean government plans to continue close consultations with international organizations such as AMRO and maintain detailed monitoring of the trends in the Korean economy.