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Growth rebounded in Q2, but tariffs loom over second half outlook

Published: 03 Sep. 2025, 17:55 Updated: 03 Sep. 2025, 19:22

Visitors shop at a traditional market in Seoul on Sept. 2. [NEWS1]

Korea’s economy grew 0.7 percent in the second quarter of 2025 compared to the first three months of the year, buoyed by recovering consumption and stronger exports, the Bank of Korea (BOK) said Wednesday.

This marked the strongest showing since the first quarter of last year, when the Korean economy grew by 1.2 percent compared to the prior quarter, after four straight quarters of near-stagnation at between minus 0.2 and 0.1 percent.

The central bank’s revised data was slightly higher than the 0.6 percent advance estimate released on July 24. Officials said consumption and exports, both dampened in the first quarter by the impeachment crisis, improved after the new administration took office.

Private consumption rose 0.5 percent, led by auto and medical services, while government spending climbed 1.2 percent, driven by health insurance payments. Exports jumped 4.5 percent on semiconductors and petrochemicals, outpacing a 4.2 percent increase in imports of crude oil and natural gas. Domestic demand contributed 0.4 percentage points to growth, and net exports added 0.3 points. In the first quarter, domestic demand had dragged the economy down by 0.5 points.

“Domestic demand will likely continue a modest recovery in the second half, helped by the supplementary budget and improving consumer sentiment,” said Kim Hwa-yong, head of the BOK’s national accounts division. "Credit card spending in July and August showed strong growth."

Members of the Hyundai Motor labor union hold a rally outside the company's Ulsan Factory on Sept. 3. [YONHAP]

But exports face headwinds. “Shipments held up well in July and August, but growth will slow as the impact of U.S. tariffs spreads,” Kim said.

On the back of the second quarter rebound, the BOK last month raised its full-year growth forecast to 0.9 percent from 0.8 percent. To reach that level, the economy must grow about 0.6 percent in both the third and fourth quarters. “If quarterly growth hits 0.7 percent, full-year growth could even reach 1 percent,” Kim said.

Still, risks are mounting. Korea’s exports to the United States fell 12 percent in August from a year earlier. Domestically, the "Yellow Envelope Bill" and amendments to the Commercial Act are likely to tighten the regulatory burden on companies while the loan curbs announced on June 27 could restrain household spending.

“It’s fortunate that growth rebounded in the second quarter, but the tariff shock from the United States will hit harder in the second half,” said Seok Byoung-hoon, an economics professor at Ewha Womans University. "While the new administration’s arrival helped lift political uncertainty in the spring, its policy stance — marked by tougher labor laws and lending restrictions — could chill investment at home."

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY BAEK MIN-JUNG [[email protected]]