Seoul: An International Monetary Fund (IMF) team announced a revised economic forecast for South Korea, projecting a growth rate of 2 percent in 2025. The reduction from the previous forecast is attributed to potential downside risks, including a slowdown in trade and increased geopolitical tensions in the region. According to Yonhap News Agency, this latest forecast represents a 0.2 percentage-point decrease from October's estimate by the IMF's executive board. The announcement followed a two-week visit by the IMF team, led by Korea mission chief Rahul Anand, who met with South Korea's finance ministry, the Bank of Korea (BOK), and other institutions to discuss economic conditions and policy measures. Anand stated that the country's real gross domestic product is expected to grow by 2 percent as the economy approaches its potential growth, and the output gap narrows. For 2024, the team anticipates a GDP growth of 2.2 percent, a downgrade from the earlier projection of 2.5 percent. This growth is likely to be underpinned by strong semiconductor exports but partly offset by a tepid recovery in domestic demand. The IMF team noted that inflation had decreased to 1.3 percent in October 2024 and is expected to remain close to the 2 percent target in 2025. Despite this, uncertainties persist, with risks skewed towards the downside, including potential slowdowns in trading partners and escalating geopolitical tensions. Anand highlighted the impact of rising commodity prices due to conflicts in the Middle East and mentioned the uncertainty surrounding potential policy changes under the incoming Trump administration in the U.S. The South Korean won has experienced fluctuations, hovering around 1,400 won per U.S. dollar since Trump's election victory. The IMF official recommended limited foreign exchange interventions to prevent market disruption, emphasizing that exchange rate flexibility has benefited Korea's trade. While inflation aligns with the BOK's target, Anand noted that gradual monetary policy normalization is prudent given the high uncertainties. The BOK had previously implemented rate hikes from August 2021 to January 2023, maintaining a key rate of 3.5 percent before a quarter-point reduction last month. Anand welcomed the recent monetary easing, suggesting it could bolster the economy, including private spending. The IMF's projections align with the Korea Development Institute's recent adjustment of South Korea's 2025 growth outlook to 2.0 percent. Anand advised that the South Korean government should prioritize structural reforms to enhance potential growth, focusing on narrowing productivity gaps between manufacturing and services, as well as large corporations and SMEs. The statement highlighted recent market and corporate reforms as promising steps and emphasized the necessity of comprehensive measures to address the declining labor force. South Korea's total fertility rate reached a historic low of 0.72 in 2023, underscoring the need for policy interventions. Anand clarified that the IMF staff's vie ws do not necessarily reflect those of the executive board. The mission's preliminary findings will be compiled into a report, pending management approval, for presentation to the IMF's executive board for further discussion and decision-making.