SEOUL - The Bank of Korea (BOK) on Tuesday sharply lowered its economic growth forecast for this year to 1.5 percent, citing persistent headwinds from weak domestic demand and exports, as well as heightened global uncertainties.

In a revised economic outlook, the BOK said Asia's fourth-largest economy is projected to grow 1.5 percent in 2025, down from its earlier forecast of 1.9 percent in November. The central bank also lowered its forecast for 2024 from 2.0 percent to 1.4 percent.

"The Korean economy is facing increasing downside risks," BOK Governor Lee Ju-yeol said in a press conference. "Weaker-than-expected domestic demand and exports, coupled with external uncertainties, are weighing on our growth prospects."

The BOK said private consumption is expected to remain sluggish due to high inflation and rising household debt, while facility investment is likely to contract amid global economic uncertainties.

Exports, which have been a key driver of growth, are also projected to slow down due to weakening global demand and intensifying competition.

The central bank also cited heightened uncertainties from the ongoing trade tensions between the United States and China, as well as the prolonged war in Ukraine.

"We will closely monitor developments in the global economy and assess their impact on our growth outlook," Lee said. "We will also carefully consider the pace of our monetary policy adjustments."

The BOK's latest growth forecast is lower than the 2 percent estimate by the Organization for Economic Cooperation and Development (OECD) and the International Monetary Fund (IMF).

The central bank also kept its key interest rate unchanged at 3.5 percent on Tuesday, after seven consecutive hikes since August 2022.

"We decided to maintain the current monetary policy stance in order to assess the impact of our previous rate hikes on the economy," Lee said. "We will also closely monitor inflation and financial stability risks."

The BOK expects inflation to gradually ease to its 2 percent target by the end of this year.

The central bank's downgraded growth forecast and cautious monetary policy stance underscore the challenges facing the Korean economy.

"The Korean economy is facing a complex set of challenges," said Park Sung-woo, an economist at KB Securities. "The BOK is walking a tightrope between supporting growth and containing inflation."

Park said the BOK is likely to remain on hold in the coming months, unless there are significant changes in the economic outlook.

"The BOK will need to carefully assess the risks before making any further policy adjustments," he said.

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