KDI upgrades 2025 growth forecast for Korean economy to 0.9%

Customers shop at a major discount chain store in Seoul, Monday. Yonhap

Korea's state-run economic think tank, the Korea Development Institute (KDI), on Tuesday raised its growth forecast for the domestic economy to 0.9 percent for 2025, citing improvements in private consumption.

The latest projection marked a 0.1 percentage-point increase from its August forecast.

For 2026, the institute said the economy is projected to grow 1.8 percent, up 0.2 percentage point from its forecast made three months earlier.

"The economy has shown signs of moderate improvement, with its growth momentum gradually expanding. While domestic demand has been weighed down by a contraction in construction investment, the recovery in consumer spending has helped ease overall weakness," the KDI said in a report.

"Despite worsening trade conditions due to the United States' tariff policies, exports have logged modest gains, supported by strong semiconductor demand. Given the circumstances, the economy is expected to maintain a gradual recovery led primarily by consumption," it added.

The latest forecast is generally in line with projections from other major economic institutions.

The Bank of Korea (BOK) expects the economy to grow 0.9 percent in 2025 and 1.6 percent next year, while it plans to release a revised outlook later this month.

The International Monetary Fund (IMF) has also presented a 0.9 percent economic growth outlook for Korea this year and 1.8 percent for next year.

The KDI forecast private consumption to grow 1.6 percent next year, up from this year's 1.3 percent expansion, while construction investment is expected to rebound, logging 2.2 percent growth after a 9.1 percent decline in 2025.

But export growth is projected to slow to 1.3 percent next year from 4.1 percent this year, as uncertainties remain high over the U.S. tariff scheme.

Though Seoul and Washington have agreed on a framework deal, some item-specific tariffs on semiconductors and other products have yet to be finalized.

"Trade uncertainty could rise significantly depending on the U.S. Supreme Court's decision on the Donald Trump administration's extensive reciprocal tariff measures," the report said.

The KDI pointed to the persistent weakening of the Korean won as another key downside risk, which has fallen well below the psychologically significant level of 1,450 won per U.S. dollar in recent weeks.

Should the Korean won continue to remain weak, inflation may exceed the 2 percent target, the institute noted.