Seoul, South Korea – South Korea is bracing for a significant economic slowdown this year, with the government forecasting a growth rate of just 1.8%. This is well below the country's potential growth rate of 2% and lower than estimates from the Bank of Korea (1.9%) and the International Monetary Fund (2%).
In a press briefing on Tuesday, South Korea's Deputy Prime Minister and Finance Minister Choi Sang-mok announced the government's economic policy direction for 2025, outlining a challenging year ahead. The government cited a host of domestic and external uncertainties as the primary factors contributing to the gloomy outlook.
The biggest drag on growth is expected to be a sharp decline in exports. After a record-breaking year in 2024, exports are forecast to grow by only 1.5% in 2025. The slowdown in the semiconductor industry and intensifying competition from China are expected to weigh on exports. Additionally, the potential imposition of tariffs by a new U.S. administration could further dampen export growth.
While the government expects domestic demand to improve as high inflation and interest rates ease, prolonged political instability could undermine this recovery. Finance Minister Choi acknowledged that the economic forecast assumes a degree of stability in domestic politics.
To counter the economic downturn, the government plans to boost fiscal spending. It will mobilize 18 trillion won in public funds and accelerate the disbursement of 85 trillion won in social welfare spending, with 70% of this amount to be spent in the first half of the year.
Deputy Prime Minister Choi hinted at the possibility of additional fiscal stimulus, stating, "We will reassess the overall economic conditions in the first quarter and consider additional measures to bolster the economy if necessary."
The government's pessimistic outlook underscores the challenging economic environment facing South Korea. With a combination of global trade tensions, domestic political uncertainty, and a slowdown in key industries, policymakers face a daunting task in maintaining economic stability.
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