Can Korea push 2025 growth above 1% after US tariff deal?
While resolving uncertainty brings short-term gains, strategic moves required for further growth, experts say
Large cranes operate at Hanwha Ocean's headquarters in Geoje, South Gyeongsang Province, Monday. Yonhap
Korea's signing of a tariff agreement with the U.S. is viewed as a potential turning point for its economy, which had widely been expected to expand less than 1 percent this year, experts said Friday.
They say the overall downside risk could diminish as exports have avoided the worst-case scenario and domestic demand is showing signs of recovery.
"It's inevitable that exports will face some negative impact with tariffs now in place. However, much of this seems to have already been factored into the early growth outlook," said Jeong Se-eun, a professor of economics at Chungnam National University.
Earlier, both domestic and global institutions — including the Bank of Korea, Korea Development Institute, International Monetary Fund and Asian Development Bank — projected Korea's economic growth rate for this year at 0.8 percent.
"Increased investment in sectors like shipbuilding could help offset the drag. If additional fiscal stimulus measures, such as the supplementary budget, are effectively implemented for the rest of the year, 1 percent growth is within reach."
On Thursday, the U.S. agreed to lower Korea's tariff rates from 25 percent to 15 percent — equal to key U.S. allies like Japan and the EU — in return for a $350 billion investment in American industries. Previously, both countries had maintained a zero percent rate under the Korea-U.S. Free Trade Agreement.
Although the higher tariff rate is expected to dampen Korea's export growth, resolving the uncertainty is widely viewed as a positive development.
In addition, rebounding domestic demand is seen as a plus for economic growth. Consumption is expected to grow further in the third quarter, buoyed by the government's second supplementary budget. The central bank anticipates that its implementation could lift this year's economic growth by 0.1 percentage point.
"Now that the trade deal uncertainty is removed, the Bank of Korea will revise its growth forecast higher on the latest stimulus package," said Kathleen Oh, chief Korea economist at Morgan Stanley.
The central bank's next monetary policy meeting is scheduled for Aug. 28.
Other experts suggest that Korea should take a proactive role in the new global trade environment, closely monitoring future developments.
Yuanta Securities strategist Kim Yong-ku pointed to U.S. efforts to initiate a "renaissance" in manufacturing, production and energy development — supported by $1.5 trillion in confirmed investment pledges from Japan, the EU and Korea, along with an estimated $5 trillion to $7 trillion in cumulative tariff revenue.
"This opportunity may be out of reach for strategic rivals like China, but it could serve as a significant springboard for Korea — a global leader in heavy industry and capital goods manufacturing," he added.
For long-term growth, the country is advised to diversify trading partners and global supply chains while identifying new economic drivers to generate more value-added returns.
"The adverse impact was much bigger on Korea than on other competitors, given its high dependency on a few markets and a few products," said Kang Min-joo, a senior economist at ING. "Korean exports are expected to recover in the second half, but mostly thanks to strong demand for AI (artificial intelligence) investment. This narrowly focused rise cannot be sustained."