Seoul: An Asia-based economic surveillance organization projected that South Korea's economy will expand by 1.9 percent in 2026, driven by growth momentum that began earlier this year.
According to Yonhap News Agency, the ASEAN+3 Macroeconomic Research Office (AMRO) provided this assessment in a report following its annual consultation with the South Korean government and related agencies. The consultation, led by Kian Heng Peh, highlighted that South Korea's economy is rebounding, supported by a recovery in private consumption and resilient exports. This follows a steady recovery post the June presidential election, which introduced a more proactive and coordinated policy stance.
AMRO forecasts that South Korea's real gross domestic product (GDP) will grow by 1 percent in 2025, with an acceleration to 1.9 percent in 2026, thereby "narrowing the negative output gap." The organization reported that inflation levels have remained close to the Bank of Korea's 2 percent target, aided by stable food prices and subdued global energy costs. However, a recent rise in service prices has been noted due to higher input costs.
Looking ahead, inflationary pressures are expected to remain contained, with headline inflation predicted to average 2.1 percent in 2025, easing slightly to 1.9 percent in 2026. Despite these positive projections, AMRO warned of challenges in the external sector, particularly the depreciation of the Korean won against the U.S. dollar amid continued net capital outflows by Korean residents.
AMRO assured that there should be no concerns over South Korea's foreign exchange reserves despite a significant outflow of U.S. dollars following the country's US$350 billion investment pledge made to lower U.S. tariffs. "Foreign exchange reserves are ample," stated Dong He, a senior AMRO economist, noting the multiple factors influencing exchange rates.
The report also highlighted South Korea's strong integration into global supply chains, particularly in the semiconductor sector. While strong trade and investment ties with major economies are strengths, they expose the country to risks from escalating trade disputes and geopolitical tensions.
"Domestic vulnerabilities arise from potential abrupt price corrections in the Seoul housing market, exposures of smaller regional savings banks and mutual credit cooperatives to impaired project finance loans, and a shrinking labor force over the medium term," AMRO stated. Peh emphasized maintaining the recovery while building resilience and safeguarding stability through a well-calibrated policy package.
Peh also noted that "on monetary policy, the current stance remains appropriate given the complex balance of risks," and that the fiscal policy's budget plan for next year is broadly appropriate. In the longer term, AMRO suggested strengthening the manufacturing sector's resilience and addressing demographic challenges as essential steps.
The Singapore-based organization was established in 2011 to promote macroeconomic and financial stability in the Asian region, which includes the 10-member Association of Southeast Asian Nations (ASEAN) and its three Northeast Asian partners: South Korea, China, and Japan.