"Buoyed by a semiconductor boom, South Korea's economic growth rate will climb to among the highest in the world for some time. But this is no time to pop the champagne. If the country fails to prepare for crisis now, a bigger shock could come later."
The International Monetary Fund delivered these contrasting messages on South Korea in its World Economic Outlook and Global Financial Stability Report released on the 13th.
On growth this year and next, the assessment was largely positive. The IMF raised its 2026 growth forecast for South Korea to 3.3% from 2.6%, an upgrade of 0.7 percentage points, saying strong demand for semiconductors would offset the negative effects of war and support the country's growth momentum. The IMF publishes economic outlooks for all member countries each April and October, and revised forecasts covering 30 major economies in January and July. The upgrade for South Korea exceeded both the global average revision of 0.1 percentage point and the advanced-economy average of 0.4 percentage points.
Lee Hyoung-il, deputy prime minister and minister of finance and economy, said on X, formerly Twitter, that if South Korea grows 3.3% as the IMF projects, it would exceed the global growth rate forecast of 3.1%. He called that a significant achievement, the first in 16 years since 2010 excluding 2020, when the COVID-19 pandemic broke out. The IMF also raised its 2027 growth forecast for South Korea to 2.8% from 2.5%, an increase of 0.3 percentage points.
The outlook was not uniformly positive. In the Global Financial Stability Report released the same day, the IMF identified three major risks to the global economy: a sharp fall in asset prices triggered by deteriorating returns on artificial intelligence investment, a surge in government bond yields driven by inflation and fiscal instability, and an expansion of cyberattacks accompanying the digitalization of finance.
All three bear directly on South Korea's economy, which has been riding high on expanding memory chip demand driven by AI capital spending. The IMF projects that the combined fiscal deficit of 41 advanced economies will reach 5.2% of gross domestic product this year, the highest level since 2021. The United States, including state and local governments, is expected to post 8.5%, and China more than 8%. The fund argues that countries need to secure fiscal capacity to cope with interest burdens from surging bond yields and with financial instability.
Fragile fiscal conditions are already pushing bond yields higher. The U.S. 10-year Treasury yield jumped from around 4.2% early this year to 5.24% on Oct. 9. The IMF kept its global inflation forecast for this year at 4.7% but said price pressures from the Middle East war, fiscal burdens and funding demand from AI companies could drive rates higher still. Fiscal imbalances are not a direct cause of rising rates, the fund said, but they leave economies more vulnerable to rate shocks.
If falling AI asset prices, rising bond yields and an energy shock coincide, the core capital ratio of global banks could drop 1.5 percentage points to 11.5%. The share of total bank assets held by vulnerable banks with capital ratios below 7% would rise to 22% from 18% a year earlier, according to the analysis. Cyberattacks tied to financial digitalization were also cited as a risk that could amplify instability in the financial system.
The IMF accordingly advised South Korea to prepare for future crises in advance. Asked about a plan to use roughly 5 trillion won in additional tax revenue to repay government bonds, Athanasios Vamvakidis, deputy director of the IMF's Monetary and Capital Markets Department, said countries should be able to save in good times so they can spend in bad times.