Gov't downgrades economic growth to 1.8 from 2.2 percent

The South Korean government has officially stated that the economy will only grow 1.8 percent this year, confirm‎ing a period of low growth in the 1 percent range awaiting the country down the road. This projection is not only below the country’s potential growth rate (2.0 percent) but also lower than the forecasts of the Bank of Korea (1.9 percent) and the International Monetary Bank (2.0 percent). With such a complex mixture of adverse factors at home and abroad, the government has indicated the potential for a supplementary budget.

The government announced the “2025 Economic Policy Directions” including growth projections at an expanded inter-ministerial meeting presided over by Acting President, Deputy Prime Minister, and Minister of Economy and Finance Choi Sang-mok on Thursday at Government Complex Seoul. It expressed deep concerns about uncertainties throughout this year. “Internal and external uncertainties this year are projected to grow so significantly that they will likely affect growth prospects, financial fields, the foreign exchange market, and people’s livelihoods,” the government said.

A declining export is the main reason behind the growth projection down to 1.8 percent by 0.4 percentage points from 2.2 percent announced last July. The government projected that this year’s export increase rate will make a sharp drop to 1.5 percent from 8.2 percent last year. The somewhat dismal outlook is associated with the anticipated slowdown in the semiconductor industry, which contributed to last year’s record export, coupled with China’s growing low-price pressure in the background. Also, it pointed out that exports would slow down due to a possible tariff increase that will follow the upcoming U.S. administration.

Despite the government’s positive outlook for the home market, given lighter interests and inflation burdens, the possibility of economic contraction cannot be ruled out if political instability continues. First Vice Minister of Economy and Finance Kim Beom-seok explained that the recent economic outlook was projected based on the premise that uncertainties caused by martial law and impeachment could be mitigated to a certain degree.

To address such a crisis on all levels, the government is determined to aggressively recover the economy by using fiscal resources to support people's livelihoods. This includes a plan to capitalize on 18 trillion won in public funds and use 70% of the 85 trillion won livelihood budget over the first half of the year.

“The national economy will be met with an unprecedented level of uncertainties at home and abroad this year given the arrival of the new U.S. government and the current domestic political situation,” Acting President Choi said at the meeting on that day. He said that economic conditions will be thoroughly reviewed during the first quarter to take additional steps for economic recovery if necessary, signaling the possibility of a supplementary budget plan.


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