Home > Business > Economy

State-run economic think tank cuts Korea's growth outlook to 1.6 percent this year

Published: 11 Feb. 2025, 18:35

SHIN HA-NEE
[email protected]

From left: Korea Development Institute (KDI) Kim Ji-yeon, head of economic trend statistics, and Jung Kyu-chul, director of the KDI's Office of Macroeconomic Analysis and Forecasting, during a press briefing at the government complex in Sejong on Feb. 11 [KDI]

Korea’s state-run think tank cut its growth outlook for this year by 0.4 percent points to 1.6 percent, citing martial law-driven political turmoil and heightened U.S. policy uncertainties.

Korea Development Institute (KDI) warned that the global tariff war spurred by U.S. President Donald Trump could further erode Korea’s economic growth, calling for additional monetary easing to boost the sluggish economy.

KDI published its quarterly economic outlook report on Tuesday, projecting the country’s real GDP to grow 1.6 percent in 2025, following an expectation-missing 2 percent expansion last year.

This is a 0.4 percentage point downgrade from its previous projection of 2 percent announced in November. The 1.6 percent figure is lower than the government’s expectation of 1.8 percent and in line with the Bank of Korea’s tentatively adjusted projection of 1.6 to 1.7 percent announced in January.

The institute cited deteriorating economic conditions, both domestically and globally, for the downward adjustment.

“We initially expected the Trump administration’s tariff increases would be implemented gradually, but the pace deviated from our expectation,” said Jung Kyu-chul, a KDI senior fellow and director of the institute's Office of Macroeconomic Analysis and Forecasting, during a press briefing on Tuesday.

“Uncertainty related to the domestic political situation remains significant as well.”

However, Jung projected that the domestic political uncertainty would be eased by the second quarter.

The institute expected private consumption to advance 1.6 percent this year, down from its previous 1.8 percent projection, citing slowing export growth and dampened consumer sentiment.

Facility investment is expected to increase 2 percent, a 0.1 percentage point cut from its November forecast, due to rising external risks. Construction investment would also remain weak after the previous year’s 2.7 percent contraction, estimated to retreat by 1.2 percent this year. The adjustment is even more skeptical than KDI’s prior projection of minus 0.7 percent.

Export growth is projected to decelerate significantly from last year’s 6.9 percent to 1.8 percent, a 0.3 percentage point cut from the November outlook.

Goods exports, in particular, would increase 1.5 percent — lower than its previous 1.9 percent forecast — as the trade environment turns increasingly unfavorable with the Trump administration rolling out massive tariffs.

The trade surplus is expected to come at $89.7 billion, down from the previous estimate of $93 billion, a moderate figure after last year’s robust $99 billion.

The inflation outlook, on the other hand, was held steady at 1.6 percent despite the projected downgrade in demand due to the weak currency and upward adjustment in the global oil price outlook.

The projection was based on a scenario where the Trump administration maintains its 10 percent additional tariff implementation on Chinese imports until the end of the year, without other variables such as newly announced steel and aluminum tariffs factored in.

“The economy has certainly slowed, considering that many institutions, including KDI, project growth in the mid 1 percent range,” said Jung, suggesting that the 1.6 percent forecast could further decline if the external or internal economic situation deteriorates.

“Monetary policy has already entered an easing cycle, and given that we consider the current interest rate to be relatively high compared to the economic situation, additional cuts are necessary,” said Jung.

BY SHIN HA-NEE [[email protected]]