SEOUL, South Korea (AP) - South Korea's premier economic institution, the Korea Development Institute (KDI), has revised its growth forecast for the country’s economy for the second time within four months. This announcement, made on Tuesday, reveals concerns regarding the ramifications of U.S. President Donald Trump’s expanding tariffs. The KDI now anticipates that South Korea’s economy will grow by 1.6% in 2025, which marks a 0.4 percentage point decrease from its previously updated estimation released in November.
According to KDI economist Kim Jiyeon, the "deterioration of the trade environment" that has occurred since the inauguration of President Trump played a critical role in this downward revision. South Korea is also facing political instability related to the impeachment and subsequent criminal indictment of President Yoon Suk Yeol, who had briefly imposed martial law in December. These factors contribute to a gloomy economic outlook, as domestic demand persists at weak levels due to decreased consumer spending and a declining job market.
Jung Kyuchul, who oversees the macroeconomic analysis department at KDI, highlighted that the momentum for exports is also waning, particularly for key industries other than semiconductors. He expressed that if President Trump's trade actions become more aggressive or if the political turmoil in South Korea continues, the KDI might further adjust its growth forecasts downwards. In November, the KDI had expected a gradual implementation of Trump’s tariff measures, presuming they would not be expedited within the year. However, Jung noted that the current situation has worsened uncertainties rather than resolving them as initially anticipated.
This week, President Trump disclosed plans to impose substantial tariffs of 25% on all foreign steel and aluminum imports, following his earlier decision to enforce a 10% tariff on all Chinese goods last month. This aggressive strategy is part of Trump's broader initiative to recalibrate global trade relations, and it has significant implications for various economies, including South Korea's.
While Jung assessed that Trump's new tariffs on steel and aluminum are unlikely to heavily impact South Korea’s economy—given that these products only represent less than 1% of South Korea's total exports to the United States—he cautioned that the potential for tariffs on other critical sectors remains a concern. Trump has indicated that he is also considering tariffs on automobiles, semiconductors, and pharmaceuticals, which are substantial sectors for the South Korean economy.
Jung underscored that should the semiconductor sector be adversely affected by such tariff measures, the economic consequences for South Korea could be significant, highlighting the importance of this industry in the nation's export landscape. The KDI’s analysis underscores the interconnectedness of global trade policies and domestic economic stability, revealing a complex landscape that both the South Korean government and its economic planners must navigate moving forward.
