South Korea Cuts 2025 GDP Growth Outlook to 0.9 Percent
(MENAFN) The South Korean government on Friday revised its 2025 economic growth forecast downward by 0.9 percentage points, citing growing domestic and international uncertainties. The Ministry of Economy and Finance now projects the country's real GDP, adjusted for inflation, to expand by just 0.9% this year, a significant drop from the earlier estimate of 1.8%.
This adjustment was driven by a combination of external challenges, including U.S. tariff hikes, and internal political instability following the brief martial law enforced by the impeached former president in December.
Newly elected President Lee Jae-myung's administration, which took office in June, has introduced a supplementary budget designed to stimulate consumer spending through direct cash handouts. This move aims to support domestic demand amid economic pressures.
Looking ahead, South Korea's economy is expected to grow by 2.0% in 2024 and 1.8% in 2026. Private consumption is forecast to rise 1.3% in 2025, accelerating to 1.7% the following year.
In response to the economic downturn, the country's central bank reduced its key interest rate by 25 basis points twice this year, bringing the rate to 2.50%. This follows similar cuts made in late 2023.
Investment trends also show mixed results. While facility investment is expected to increase by 2.0% in 2025, construction investment is predicted to plummet 8.2%. However, a recovery of 2.7% is anticipated in 2026.
Exports, which make up a large portion of South Korea's economy, are expected to grow marginally by 0.2% in 2025, after an 8.1% increase in 2024. However, trade concerns remain, with outbound shipments projected to drop 0.5% next year due to ongoing protectionist policies from the U.S.
The current account surplus is forecast at $95 billion in 2025 and $80 billion in 2026, signaling stable trade flows despite global headwinds.
On the labor front, South Korea anticipates a gain of 170,000 jobs in 2025, with job growth expected to moderate to 110,000 in 2026. The employment rate for 2025 is projected to reach 62.8%. Meanwhile, inflation is expected to remain steady at 2.0% in both 2025 and 2026.
In an effort to drive future economic growth, the Lee government unveiled 30 ambitious projects focused on technological advancements in artificial intelligence (AI), renewable energy, and high-tech materials. Fifteen of these initiatives will target AI innovations, including humanoid robots, autonomous vehicles, drones, and semiconductor advancements. The remaining projects will focus on developing next-generation materials such as silicon carbide (SiC) power semiconductors, superconductors, and green hydrogen technologies.
To finance these projects, the government plans to establish a "national growth fund" of 100 trillion won ($71.8 billion), with equal contributions from the public and private sectors.
The revised economic forecast underscores the challenges South Korea faces in maintaining growth amid uncertain global conditions and a rapidly changing domestic landscape.
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