Fitch Ratings has raised its economic growth forecast for South Korea, saying the country is emerging from a period of sluggish activity on the back of government stimulus, a rebound in housing and easing political uncertainty under the new administration of President Lee Jae Myung.
In its outlook released last Friday, the global credit rating agency projected Korea’s real gross domestic product (GDP) growth at 1.0% for 2025 and 1.9% for 2026, up slightly from its June forecast of 0.9% and 1.8%, respectively.
It said the new government’s generous fiscal support measures, a recovery in the housing market and the end of political gridlock are helping lift momentum, although weaker exports and China’s slowdown remain key risks.
“The Korean economy is coming out of a period of subdued activity on the back of policy stimulus, a bottoming-out in the real estate cycle and the end of political uncertainty,” Fitch said.
Exports, which account for about 40% of Korea’s GDP, are expected to soften amid slower Chinese demand and US trade restrictions.
Fitch warned that net trade’s contribution to growth could turn negative next year, with quarterly expansion easing to between 0.2% and 0.4%.
The agency expects fiscal and monetary support to remain crucial as growth stays below trend.
A second supplementary budget passed after the June election, when Lee was elected president following the ouster of former President Yoon Suk Yeol, is set to boost activity in the second half of 2025.
Still, Fitch said global risks tied to US tariffs, weaker Chinese demand and lingering weakness in the real estate sector could constrain investment.
SLIGHTLY HIGHER THAN THE KOREAN GOVERNMENT’S OUTLOOK
Fitch’s upgraded forecast broadly aligns with S&P Global Ratings, which expected Korea’s GDP to expand 0.7% in 2025 and 1.9% in 2026, according to an internal report obtained by The Korea Economic Daily last week.
S&P’s 2026 projection is slightly above the Korean government’s 1.8% estimate and the Bank of Korea’s 1.6% forecast, reflecting cautious optimism about a gradual rebound in external demand.
The agency said it expects Korea to maintain its AA sovereign rating with a stable outlook through 2026, supported by steady growth, a manageable fiscal deficit and strong external buffers such as deep foreign-exchange markets and a credible monetary policy framework.
In September, the International Monetary Fund (IMF) maintained its growth forecast for South Korea at 1.8% for 2026, compared with a projected 0.9% expansion in 2024, citing easing uncertainties, accommodative policies and favorable base effects.
According to Bank of Korea’s data, the country’s GDP grew 1.2% in the third quarter from the previous quarter, after expanding 0.7% in the second quarter and contracting 0.2% in the first quarter.
In August, the central bank raised its 2025 growth outlook to 0.9% from 0.8%, citing fiscal support, but kept its 2026 forecast at 1.6%, warning the recovery remains fragile.
