Seoul: An Asia-based economic surveillance organization has projected that South Korea's economy is set to 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) made this assessment following its annual consultation with the South Korean government and related agencies. The consultation, led by Kian Heng Peh, highlighted the country's economic rebound expected in 2025, supported by a recovery in private consumption and resilient exports, following a steady recovery post the June presidential election.

AMRO anticipates that South Korea's real GDP will grow by 1 percent in 2025, accelerating to 1.9 percent in 2026, effectively narrowing the negative output gap. The organization noted that inflation has remained close to the Bank of Korea's 2 percent target, aided by stable food prices and subdued global energy costs, while service prices have risen due to higher input costs.

Looking forward, inflationary pressures are expected to remain contained, with headline inflation forecasted to average 2.1 percent in 2025, easing slightly to 1.9 percent in 2026. However, AMRO warned of challenges in the external sector, as the Korean won has depreciated against the U.S. dollar amid ongoing net capital outflows by Korean residents.

The agency highlighted South Korea's integration into global supply chains, particularly in the semiconductor sector, as a strength, though it also exposes the country to risks from trade disputes and geopolitical tensions. Domestic vulnerabilities include potential abrupt price corrections in the Seoul housing market, exposures of smaller regional banks to impaired loans, and a shrinking labor force over the medium term.

Peh recommended maintaining the recovery while building resilience and safeguarding stability through a well-calibrated policy package. He mentioned that the current monetary policy stance remains appropriate, given the complex balance of risks, and that the fiscal policy budget plan for the next year is broadly suitable.

The Singapore-based AMRO was established in 2011 to promote macroeconomic and financial stability in the Asian region, covering the 10 ASEAN countries and its three Northeast Asian partners-South Korea, China, and Japan.