Gov't halves 2025 growth outlook to 0.9% citing uncertainties
Container boxes are stacked at a port in Busan, March 1, 2023. Yonhap
The government on Friday halved the country's economic growth outlook for this year to 0.9 percent, citing rising uncertainties both at home and abroad, including U.S. tariff measures.
The latest projection, unveiled during a meeting on the Lee Jae Myung administration's economic growth strategy, marks a 0.9 percentage-point cut from the last government forecast made in January.
The revised outlook is broadly in line with projections from other major institutions.
The state-run think tank Korea Development Institute, International Monetary Fund (IMF), Asian Development Bank and the Bank of Korea have each forecast 0.8 percent growth for South Korea in 2025. The Organization for Economic Cooperation and Development (OECD) has projected a slightly higher growth rate of 1 percent.
The government expects the economy to rebound in the second half of the year, supported by supplementary budgets and policy effects that will help boost private consumption.
As a result, the government forecast the economy to expand by 1.8 percent in 2026.
"In the second half, we will need to achieve a mid-1 percent growth," said Kim Jae-hoon, a finance ministry official, emphasizing that the government will mobilize all available policy tools to maximize growth.
However, the latest projection for this year does not account for the potential impact of proposed U.S. chip tariffs, raising concerns about lingering risks for South Korea, where semiconductors are one of the top export items.
U.S. President Donald Trump earlier said his administration will unveil tariffs on semiconductor imports, adding there would be a tariff increase from a "lower" rate to a "very high" rate.
"The government did not factor it in due to significant uncertainty," Kim said, noting that many domestic companies have already made or are planning investments in the U.S.
Private consumption is projected to grow 1.3 percent in 2025, slightly up from 1.1 percent last year.
The government expects a modest recovery in consumer spending in the second half of this year and into 2026, driven by lower interest rates and stimulus measures, including cash handouts called consumption coupons included in the latest supplementary budget.
Construction investment is forecast to fall 8.2 percent year-on-year in 2025, a steeper decline compared with the 3.3 percent drop recorded last year, according to the government projection.
However, the government projected a recovery starting later this year, forecasting a 2.7 percent increase in construction investment as order volumes gradually rebound.
Exports are expected to increase 0.2 percent this year, marking a steep slowdown from the 8.1 percent growth seen last year, due largely to deteriorating global trade conditions triggered by U.S. tariff measures.
In late July, South Korea and the United States reached a last-minute tariff agreement, under which Washington agreed to reduce the initially proposed 25 percent tariff on South Korean imports to 15 percent in return for South Korea's $350 billion investment in the U.S.
While semiconductor and ship exports are expected to maintain growth, the government forecasts slowdowns in automobiles and steel, which are subject to new U.S. tariffs, and in petroleum and chemicals, which are facing weaker global demand and oversupply.
The government said while the latest tariff deal has eased some of the uncertainty around exports, risks remain, especially around the semiconductor and pharmaceutical sectors.
As a result, exports are expected to decline 0.5 percent in 2026, a reversal from the modest gains projected for 2025.
The government also warned that demographic changes and rising economic uncertainty are putting downward pressure on the labor market.
Regardless, the number of employed people is expected to increase by 170,000 this year, up from 120,000 projected in January, on the back of rising demand in the service industry.