South Korea's economy may grow only 0.9% this year, the slowest growth rate since the impact of the pandemic
The South Korean government expects the economy to grow by 0.9% in 2025, slightly higher than the central bank's May forecast of 0.8%. This year's economic growth rate is expected to slow to 0.9%, the slowest since the pandemic, affected by U.S. tariffs. Although exports remained resilient in the first half of the year, exports to the U.S. fell by 2.7% in the first 20 days of August. The South Korean economy relies on exports and faces risks from protectionism and structural issues. The government will launch support plans to enhance supply chain resilience, and economists are divided on the possibility of interest rate cuts. To achieve the annual growth target, output needs to grow by about 1% in the second half of the year
According to the Zhitong Finance APP, South Korea is expected to see its economic growth slow this year, marking the slowest growth since the economy contracted due to the pandemic in 2020, as U.S. tariffs may disrupt business activities in the coming months. The South Korean government forecasts that the economy will grow by 0.9% in 2025, slightly higher than the 0.8% predicted by the Bank of Korea in May.
A joint statement released by the South Korean government on Friday indicated that exports remained resilient in the first half of the year as South Korean manufacturers shipped goods early ahead of the U.S. tariff hikes. However, exports may weaken due to a trade agreement reached between South Korea and the U.S. at the end of last month.
Statistics show that South Korea's exports to the U.S. fell by 2.7% in the first 20 days of August, indicating a slowdown in growth momentum following a 1.4% increase in July.
Friday's forecast highlights the fragile state of Asia's fourth-largest economy. South Korea is slowly recovering from a political crisis marked by martial law. As a key player in the semiconductor, automotive, and advanced technology sectors, South Korea's economy is closely tied to the global supply chain and is seen as a leading indicator of global economic growth.
South Korean authorities will continue to monitor economic trends to take further stimulus measures if necessary. Economists are divided on whether the Bank of Korea will cut interest rates at its monetary policy meeting on August 28, but Bank of Korea Governor Lee Chang-yong indicated after last month's meeting that four members were open to further rate cuts in the coming months.
Last month, the South Korean parliament and cabinet approved an additional budget of 31.8 trillion won (approximately $23.3 billion) to help the economy withstand trade headwinds. The South Korean government also announced this week that it will launch a support plan worth 45.8 trillion won to enhance supply chain resilience.
The South Korean economy remains highly dependent on exports, which exposes it to greater risks amid rising overseas protectionism. Additionally, South Korea faces a series of structural issues domestically, including weak construction activity and high household debt.
After a slight contraction in the previous quarter, the South Korean economy rebounded in the three months ending in June. However, to achieve the annual growth target of 0.9%, output in the second half of the year needs to grow by about 1%, a goal the South Korean government acknowledges will be difficult to achieve.
Furthermore, the South Korean government announced a fiscal plan worth 210 trillion won for 2026-2030 to advance its core policy commitments in innovation, economic growth, social welfare, and foreign policy. The plan focuses on significant investments in artificial intelligence while prioritizing funding for biotechnology, healthcare, and defense. The aim is to raise South Korea's potential growth rate to 3% during this period
