The Republic of Korea’s Gross Domestic Product (GDP) is anticipated to increase by 2.1% this year when measured in the national currency, the won, Korea JoongAng Daily reports. However, the international benchmark, the US dollar value of the economy, is projected to shrink by 0.9% due to the currency’s historic depreciation, according to the International Monetary Fund (IMF).

This trend is critical because South Korea's economic status relies heavily on its ability to compete globally, and a contracting dollar-denominated GDP weakens its international standing and delays key national economic goals, like reaching a $2 trillion economy and $40,000 in per capita GDP.

The IMF’s recent annual consultation, released November 30, forecasted Korea’s nominal GDP for 2025 at $1.86 trillion. This marks a 0.9% decrease, or $16.8bn drop, from the $1.88 trillion recorded in 2024. Furthermore, the total dollar-denominated growth across the two years since 2023 (when it was $1.84 trillion) is only $13.8bn, or 0.7%, signaling near-stagnation when compared globally.

Conversely, the domestic nominal GDP is expected to reach KRW2.61 quadrillion, a 2.1% increase from KRW2.56 quadrillion in 2024. Nominal GDP, which does not account for price changes, typically rises with inflation. The persistent strength of the dollar and unusual weakness of the won has largely undermined these domestic gains.

By the end of November, the average exchange rate for the year was KRW1,417.68 per dollar, surpassing the previous peak of KRW1,394.97 set in 1998 following the Asian financial crisis. This rate represents a 4% increase, or KRW54.3 weakening, compared to the KRW1,364.38 average of last year. Analysts caution that the continued slide of the won could postpone milestones, including reaching $40,000 in per capita GDP, a target previously anticipated by 2027. Domestic political turmoil in December, which included the declaration of martial law and the impeachment of President Yoon Suk Yeol, contributed to greater exchange rate instability.

The IMF noted that while currency fluctuations alone are unlikely to pose a significant risk, periods of global market uncertainty can lead to thinner liquidity and more pronounced currency movements in the foreign exchange market.