The Korea Development Institute (KDI), a government-funded research organization, projected the country's economic growth rate at 1.6% this year. It has lowered its forecast by 0.4 percentage points due to the worsening trade environment following the inauguration of the Trump administration. This is the lowest level among major forecasting institutions.
On the 11th, KDI projected that the economic growth rate would remain at 1.6% for the year through its revised economic outlook. This marks a downward adjustment of 0.4 percentage points compared to the forecast from November last year for the second half of 2024 (2.0%).
KDI's forecast was also the lowest among other major forecasting institutions. It was lower than the government's (1.8%) and the Bank of Korea's (1.9%), as well as the International Monetary Fund (IMF) at 2% and the Organisation for Economic Co-operation and Development (OECD) at 2.1%. It matches the forecast of global investment banks, which have quickly lowered South Korea's growth rate since the beginning of the year (the average for eight banks at the end of January was 1.6%) and is similar to the unofficial estimate (1.6% to 1.7%) recently released by the Bank of Korea through a blog.
◇ All forecasts for consumption, investment, and exports are 'gloomy' compared to three months ago
According to KDI's assessment, there is nothing positive about the current economic situation in the country. KDI noted, "As domestic recovery is delayed and the previously high rate of export growth is being adjusted, the growth rate is weakening," adding that "our economy is expected to slow down as both domestic consumption and exports remain at low growth rates."
Compared to the forecast three months ago, worsened figures were presented across all sectors: ▲ Private consumption growth rate 1.8→1.6% ▲ Facility investment growth rate 2.1→2.0% ▲ Construction investment growth rate -0.7→-1.2% ▲ Goods export growth rate 1.9→1.5% ▲ Current account surplus 93 billion → 89.7 billion dollars.
This reflects the results of the worsening trade environment due to the inauguration of the Trump administration. Jeong Gyu-cheol, Deputy Minister of the KDI Economic Outlook Office, said, "Last November, it was assumed that the tariff increases would proceed slowly, so their negative effects would not be reflected quickly this year. However, as the U.S. government has already begun to impose tariffs on China and others, the uncertainty surrounding trade policy has increased significantly, and it is expected to negatively impact exports."
This is a factor that negatively affects domestic consumption in a chain reaction. The Deputy Minister noted, "When export conditions worsen, household income becomes unstable," adding that "consumer sentiment has been adjusted downward due to recent political instability."
◇ "If trade conflicts intensify, growth could be lower than 1.6%"
Overall, despite the negative economic conditions, KDI projected that the situation could improve gradually towards the second half of the year. KDI anticipates growth rates of 0.9% for the first half and 2.2% for the second half, expecting improvements in consumption and construction.
The Deputy Minister stated, "As political instability caused by the martial law situation is resolved, consumer sentiment is expected to recover significantly by the second quarter, and the effects of the interest rate cuts from October to November last year will show a delayed impact on domestic recovery in the second and third quarters," and added, "For construction, we assume a scenario where the downturn is resolved starting in the second half of the year."
Meanwhile, KDI expects this year's consumer price inflation rate to remain at 1.6%, lower than last year's (2.2%). The core inflation rate is projected at 1.5%, the same as three months ago. Rising oil prices and exchange rates are factors pushing prices up, but domestic stagnation is acting as a downward factor. The number of employed people is expected to increase by about 100,000, lower than last year's increase of 160,000, reflecting the weaker-than-expected recovery in domestic consumption, reducing the forecast by 40,000 from the previous estimate.
KDI has identified 'trade' as a future risk factor. KDI noted, "If trade disputes intensify due to policies of the Trump administration, there is a possibility of significant downward pressure on our economy," and added, "Internally, if political instability prolongs, it could delay the recovery of economic sentiment, limiting improvements in domestic consumption." In this case, it implies that this year's economic growth rate could be lower than 1.6%.