BOK hints at slashing Korea's 2025 growth forecast amid Trump tariff chaos

Bank of Korea Gov. Rhee Chang-yong during a press conference at the bank headquarters in Seoul, Thursday. Yonhap

The Korean economy this year is likely to grow significantly slower than the previous forecast of 1.5 percent, hamstrung by tariff uncertainties, prolonged political turmoil and financial losses from wildfires, the country’s top monetary policymaker said Thursday.

Underpinning the grim outlook is growth in the first three months of this year, which is estimated to have ended up far lower than expected due to the sudden combination of headwinds.

The Bank of Korea (BOK) now expects first quarter growth to fall below 0.2 percent, significantly revised down from the 0.5 percent forecast in November. It even said the country “cannot rule out the possibility of a contraction.”

The central bank left the key rate unchanged at 2.75 percent Thursday, citing sustained weakness and the won's volatility relative to the U.S. currency. A sudden uptick in household debt buildup, coupled with rising home prices, was another factor.

Still, it hinted at easing next month, factoring in anemic domestic spending and a weak export outlook.

All six members of the monetary policy board were open to easing in the next three months. Thursday’s decision had one dissent from dovish rate setter Shin Sung-hwan who called for a 25-basis-point cut, scaled down from the previous recommendation of a 50-basis-point “big cut.”

“We have found ourselves in a dark tunnel, so to speak,” BOK Gov. Rhee Chang-yong said during a press conference at the bank headquarters in Seoul. “Uncertainties have spiked to an unprecedented level. We believe it was time to slow down the pace of easing to navigate the sudden surge in headwinds.”

These remarks were in reference to the rapid changes in U.S. tariff policies under the Donald Trump administration and the ensuing responses from other major economies.

Also at play were a series of wildfires in mid-March that damaged more than 48,000 hectares of land.

Rhee said he was aware that May’s upcoming rate decision will be interpreted as politically motivated, since it comes shortly before the snap presidential election on June 3.

“We will strive to make a neutral decision independent of political influence.”

The Korean won remains far undervalued relative to the economic fundamentals of the country, he added.

“The currency will gain ground, once the U.S. tariff policies and political uncertainties subside. The strength of the Korean currency will be determined by the U.S. inflation and growth, the subsequent Federal Reserve monetary path and changes in the dollar index, as well as a breakthrough in domestic political turmoil," the governor said.

Dave Chia, an associate economist at Moody’s Analytics, said Korea is struggling with weak domestic demand and increased uncertainty related to global trade policies.

“We expect at least one more rate cut this year, given the subdued state of the economy and muted inflationary pressure," he said.