KDI slashes 2025 growth outlook for Korea to 1.6 % on heightened uncertainties
Shipping containers are stacked at a port in Busan, Feb. 4. Yonhap
A major state-run economic think tank on Tuesday sharply revised down to 1.6 percent its growth outlook for the Korean economy this year, citing increased uncertainties both at home and abroad.
The latest forecast by the Korea Development Institute (KDI) marks a 0.4 percentage-point decrease from its previous projection made in November.
"Domestically, political instability has weakened economic sentiment, while externally, policy shifts in the United States have worsened trade conditions, leading to the downward revision of the growth forecast," the KDI said in its latest report.
The KDI's latest projection is more pessimistic than those of other major institutions, including that of the Organization for Economic Cooperation and Development (OECD) at 2.1 percent, the International Monetary Fund (IMF) at 2 percent and the Bank of Korea (BOK) 1.9 percent.
"There is no doubt that the economy is entering a slowdown, given that multiple institutions predict growth in the mid-to-late 1 percent range," Jung Kyu-chul, head of KDI's macroeconomic analysis department, said in a press briefing.
Last month, the BOK said the country's economic growth could slow to as low as 1.6 percent, citing political instability stemming from the impeachment and criminal indictment of President Yoon Suk Yeol, who briefly imposed martial law in December.
"Particularly, the recent U.S. tariff hikes and growing uncertainty in trade policy have significantly increased risks," Jung said. "Things have not gone in the direction we had anticipated, and the level of uncertainty has grown too high."
The think tank noted that exports, which recorded 6.9 percent on-year growth last year, are expected to slow significantly to a 1.8 percent increase this year, as global trade tensions have intensified following the inauguration of U.S. President Donald Trump.
On Monday (U.S. time), Trump signed proclamations imposing 25 percent tariffs on all steel and aluminum imports as part of an aggressive push to reset global trade dynamics.
Jung noted that while outbound shipments of semiconductors remain resilient, most other key industries are struggling to gain momentum.
In addition to the direct impact of U.S. trade restrictions, the KDI said an economic slowdown in other major countries could further dampen Korea's exports.
Jung said the KDI could further lower its growth projection if Trump's trade actions intensify or the country's political turmoil persists.
The KDI projected the country's current account surplus will reach around $90 billion this year, following a $99.04 billion surplus in 2024, on weakened export growth.
The report highlighted sluggish domestic demand as a key factor in slowing economic improvement last year, with conditions expected to gradually improve down the road as the effects of interest rate cuts materialize and political uncertainties subside.
The KDI said private consumption, which grew 1.1 percent in 2024, is forecast to accelerate to 1.6 percent this year.
However, the figure has been revised downward from the 1.8 percent growth projected in November, reflecting weakened economic sentiment caused by the political turmoil.
Facility investment is expected to grow 2 percent this year, slightly up from the 1.8 percent increase recorded in 2024, the KDI said.
Meanwhile, the construction sector is projected to contract for the second consecutive year, declining 1.2 percent this year, following a 2.7 percent contraction last year. (Yonhap)