KDI Revises Economic Outlook on June 11
Growth Forecast Lowered to 1.6 Percent
Risks from Trump’s Tariff Policy and Political Instability Highlighted
The Korea Development Institute (KDI), a government-funded research institute, has lowered South Korea's growth rate forecast to the 1% range. This is due to the significant expansion of global economic risks amid worsening trade conditions following recent policy changes in the United States, as well as increased uncertainty caused by domestic political instability.
On the 11th, KDI revised its economic outlook, lowering this year's growth forecast from 2.0% to 1.6%, a 0.4 percentage point drop. This follows a 0.3 percentage point cut made last November, marking a larger reduction this time.
Jung Kyu-chul, head of KDI's Economic Outlook Office, said in a briefing, "It is difficult to single out one main factor for the lowered growth rate as both domestic and international factors have been reflected," adding, "In particular, the rapid progress of President Trump's tariff increase policy has caused the situation to develop somewhat differently from the outlook in November last year."
This forecast is more conservative than those of the government (1.8%) and the Bank of Korea (1.9%). The International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) maintain their forecasts at 2.0% and 2.1%, respectively.
KDI especially viewed the uncertainty caused by the Trump risk, which has emerged as the biggest economic issue, as having increased further. Jung said, "In November last year, we assumed that President Donald Trump's tariff increase policy would proceed more gradually this year, so it would not advance rapidly. However, tariffs have already been raised on countries such as China."
He continued, "We expected that over time, uncertainty following the Trump administration would somewhat ease, but rather, the uncertainty has grown larger, which has had the greatest impact." KDI also adjusted its assumptions regarding global semiconductor trade volume, lowering the forecast for goods export growth from 1.9% to 1.5%.
KDI warned that if political instability prolongs, the growth rate could fall below 1.6%. It also emphasized the need for interest rate cuts.
Jung said, "Monetary policy has a clear goal of stabilizing prices and the economy," adding, "We should heed the IMF's recommendation during last week's annual consultation with Korea that monetary policy normalization is necessary."
KDI expects the domestic demand slump to gradually ease. Private consumption is projected to grow by 1.6%, higher than last year's 1.1%, reflecting the impact of interest rate cuts and the gradual easing of political instability. However, exports are expected to grow by only 1.8%, as the worsening trade environment adjusts the previously higher growth rate of 6.9% last year.
Consumer prices are forecast to rise by 1.6%, lower than last year's 2.3%. With a declining working-age population and only a modest domestic recovery, the number of employed persons is expected to increase by around 100,000, less than last year's 160,000.
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