Lee Yeon-woo is a financial journalist at The Korea Times. Her wide range of reporting includes policies, macroeconomics, stock market, companies and even crypto. She is passionate about connecting the dots in Korean finance and making it easier for foreign nationals to understand. Based on her previous experience as a national reporter, she also has a keen interest in social issues within the sector, including gender equality and ESG. Your tips and insights are always appreciated. You can send them to yanu@koreatimes.co.kr.
Korea enters period of low economic growth
People walk across a street in front of the Bank of Korea in Seoul, in this October 2019 photo. AP-Yonhap
By Lee Yeon-woo
Potential growth rate to dip to 1% range in 2025, 2026
The likelihood of Korea entering a period of low growth is increasing, as major financial institutions have lowered their 2025 growth forecasts to the 1 percent range.
According to industry sources, Sunday, five global financial institutions — Barclays, Citigroup, J.P. Morgan, HSBC and Nomura — recently projected Korea's economic growth rate for 2025 to fall between 1.7 percent and 1.9 percent.
Until recently, most forecasts predicted next year's growth would remain in the low 2 percent range. However, as the year-end approaches, downward revisions have become more common.
The trend extends to the nation's central bank. At its monetary meeting on Thursday, the Bank of Korea (BOK) also lowered its 2025 forecast from 2.1 percent to 1.9 percent, while implementing an unexpected consecutive rate cut. It projected growth of 1.8 percent for 2026.
This marks the first time since the collection of such data began in 1954 that Korea anticipates its economic growth will fall below the 2 percent range for two consecutive years. Despite the challenges of the 1998 Asian financial crisis, the 2009 global financial crisis and the 2020 COVID-19 pandemic, the country's economy managed to recover.
Market watchers believe that Korea's export-dependent economy is facing its greatest challenge due to increasing uncertainty driven by external factors, including the inauguration of Donald Trump.
Samsung Electronics' booth at the 2024 Korea Electronics Show in Seoul, Oct. 23. Reuters-Yonhap
"The weakening of exports already began in the second half of this year. This could also lead to a decline in investment," Kwon Goo-hoon, senior Asia economist and managing director at Goldman Sachs, said during a press conference on Nov. 26, slashing Korea's growth rate from 2.2 percent to 1.8 percent.
The BOK echoed similar concerns in a report released alongside its economic outlook, stating "Korea's export growth is likely to slow due to intensified competition with China and heightened U.S. protectionist measures."
China, once Korea's largest export destination, has transformed into a formidable competitor in critical tech industries, including semiconductors, electric vehicles and batteries. Meanwhile, trade tensions with the U.S. are expected to escalate, as Korea is projected to post a trade surplus of over $50 billion with the U.S. again this year.
At the same time, the extended period of high interest rates and inflation has made it increasingly difficult for the domestic market to make up for such negative factors.
The confidence of domestic consumers and businesses has already deteriorated significantly. The six-month outlook for future economic conditions, one of six indices that make up the composite consumer sentiment index, saw its sharpest decline in two years and four months, according to the BOK.
Experts have called for structural reforms to enhance productivity. Rahul Anand, head of the IMF's Korea mission team, emphasized that the decline in potential growth caused by low birthrates and an aging population is a critical challenge that demands greater focus.
"While it is true that growth forecasts for next year and the following year carry significant uncertainty, it is also evident that the potential growth rate is declining rapidly," BOK Governor Rhee Chang-yong said. "Efforts to prevent this decline through structural reforms are essential."