The government has revised down its forecast for South Korea's economic growth rate in 2025 from the previous 2.2% to 1.8%, a 0.4 percentage point decrease. This adjustment reflects recent political uncertainties such as the martial law incident and the presidential impeachment crisis.
Growth Rate Forecast for This Year Falls to Early 1% Range
The Ministry of Economy and Finance projected in last week's '2025 Economic Policy Direction' that this year's real GDP growth rate will remain at 1.8%. This is below the potential growth rate of 2%. The ministry presented this forecast on the assumption that the current political risks will not worsen and will be somewhat managed, but it did not rule out the possibility of further downward revisions if the impeachment crisis prolongs. The government's forecast is lower than those of major institutions such as the OECD (2.1%), IMF (2.0%), KDI (2.0%), and the Bank of Korea (1.9%). Particularly, forecasts from overseas investment banks (IBs) are even more pessimistic. According to the Korea Institute of Finance, the average growth forecast for Korea by eight foreign IBs was 1.7% at the end of last year, down from 1.8% a month earlier. JP Morgan notably lowered its forecast from 1.7% in November to 1.3% in December.
Exports, Consumption, and Employment All Deteriorate
The export outlook is also bleak. The government expects export growth this year to be 1.5%, which is only one-fifth of last year's 8.2%. Intensified competition in key sectors such as semiconductors and anticipated changes in trade policies following the inauguration of the Trump administration in the U.S. are analyzed as major downward factors. The domestic sector is also expected to recover slowly. Private consumption is forecast to slightly improve from 1.2% last year to 1.8% this year, but high household debt and weakened consumer sentiment are expected to act as constraints. Construction investment is expected to continue its negative growth at -1.3% this year, following last year's -1.5%.
The employment market is also expected to worsen. The government projects an increase of 120,000 in the number of employed persons this year, which is 50,000 fewer than last year's estimate of 170,000. The retirement of the second baby boomer generation, a decline in the working-age population, and economic slowdown are cited as the main causes.
Inflation is expected to stabilize somewhat. The consumer price inflation rate is forecast to slow from 2.3% last year to 1.8% this year, attributed to stable international oil prices and economic slowdown, but this is considered far from healthy price stability.
Government Focuses on Managing External Credibility
In response to this economic situation, the government has proposed four major policy directions: recovery of the livelihood economy, management of external credibility, response to uncertainties in the trade environment, and strengthening industrial competitiveness. Particular emphasis is placed on managing the national credit rating, as a downgrade could directly affect government bond interest rates and exchange rates. Regarding fiscal policy, the government is cautious. With a tax revenue shortfall of 86 trillion won over two consecutive years, it is difficult to pursue aggressive fiscal policies through bond issuance. Instead, the government plans to inject 18 trillion won of available public sector resources and to expedite the execution of 40% of 85 trillion won in livelihood and economic-related projects from the existing budget in the first quarter.
Regarding supplementary budgets, the government currently states "there is none for now," but left room to consider additional economic stimulus measures if necessary after reviewing the economic situation in the first quarter. Experts generally believe that an economic rebound within the first quarter is unlikely, making supplementary budgets ultimately inevitable.
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