South Korea Downgrades 2025 Economic Growth to 1.8% amid Challenges and Uncertainties

South Korea has revised its 2025 economic growth forecast down to 1.8% from previous projections of 2.2% and 2.6%, the finance ministry announced on January 2, 2025. The downgrade reflects ongoing challenges, including weak private consumption, slowing export momentum, uncertainties related to President Yoon Suk Yeol’s impeachment and the potential economic impact of Donald Trump’s tariff plans.

Global uncertainties are expected to significantly affect South Korea, particularly in the semiconductor sector, where demand for memory chips may face correction and competition is intensifying. This could lead to slower exports and potentially lower GDP growth in early 2025, according to iM Securities analyst Park Sang-hyun.

To stimulate economic activity, the government plans to accelerate budget spending in the first half of 2025, relax regulations, and potentially introduce additional measures. However, with reduced fiscal spending approved by the opposition, there is speculation among economists that a supplementary budget could be drafted as early as the first quarter.

Moreover, to bolster consumer confidence, the ministry intends to introduce tax exemptions on spending, reduce vehicle purchase taxes by 30%, and offer tax incentives for companies that increase employee wages. Meanwhile, the central bank is considering lowering interest rates. These measures come as South Korea’s Kospi stock market and won currency recorded the worst performances in Asia in 2024.