South Korea cut its economic growth forecast for this year, reflecting the fallout from impeached President Yoon Suk Yeol’s martial law debacle and risks on the trade-reliant nation from Donald Trump’s tariff plans.
The Finance Ministry now sees the economy growing 1.8% in 2025 after expanding 2.1% last year, it said in a statement Thursday. Those projections are down from July’s forecasts of 2.2% and 2.6%, respectively, and underscore the pressure from weaker private consumption and easing export momentum.
Global uncertainties are a key risk for South Korea, as demand for memory chips may face a correction and competition among export-reliant economies is intensifying, the ministry said. It also pointed to ongoing concerns about capital outflows to the U.S. and the country’s political situation.
South Korea is reeling from Yoon’s short-lived declaration of martial law on Dec. 3, which led to his impeachment and suspension of his duties. His shock move rattled markets, hurt business sentiment and undermined the country’s diplomatic efforts. The Constitutional Court is set to decide whether he will be permanently ousted.
The government’s 2025 outlook is 0.1 percentage point lower than the view offered by the Bank of Korea in November. Governor Rhee Chang-yong told reporters last month the central bank might further trim its 2025 growth forecast when it meets in February.
The BOK and government have pledged to offer unlimited liquidity if needed to limit the economic fallout from the political crisis. Speculation is growing among some economists that the BOK may lower its benchmark rate in January, in what would be a third consecutive cut since a policy pivot in October.
Rhee vowed on Thursday to take a flexible approach to future rate cuts while closely monitoring risks amid increased political and economic uncertainty. He also said it’s hard to stabilize the economy with monetary policy alone.
There’s a growing chance that GDP may contract at the start of 2025 and the economy may end up expanding less than 1.7% this year, iM Securities analyst Park Sang-hyun said in a note.
“If exports slow down, especially semiconductors, amid a deteriorating economy that is not expected to improve anytime soon, downside risks to domestic GDP growth in the first quarter of 2025 are likely to increase,” he said.
