South Korea cut its economic growth forecast for this year, reflecting the fallout from impeached President Yoon Suk-yeol’s martial law debacle and risks on the trade-reliant nation from US president-elect Donald Trump’s tariff plans.
The South Korean Ministry of Economy and Finance now sees the economy growing 1.8 percent this year after expanding 2.1 percent last year, it said in a statement yesterday. Those projections are down from July’s forecasts of 2.2 percent and 2.6 percent respectively, and underscore the pressure from weaker private consumption and easing export momentum.
Global uncertainties are a key risk for South Korea, as demand for memory chips might face a correction, and competition among export-reliant economies is intensifying, the ministry said. It also pointed to ongoing concerns about capital outflows to the US and the country’s political situation.
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The government’s outlook for this year is 0.1 percentage points lower than the view offered by the Bank of Korea (BOK) in November.
The BOK and government have pledged to offer unlimited liquidity if needed to limit the economic fallout from the political crisis. Speculation is growing among some economists that the BOK might lower its benchmark rate this month, in what would be a third consecutive cut since a policy pivot in October last year.
The BOK vowed yesterday to take a flexible approach to future rate cuts while closely monitoring risks amid increased political and economic uncertainty. It also said it is hard to stabilize the economy with monetary policy alone.
There is a growing chance that GDP might contract at the start of this year, and the economy might end up expanding less than 1.7 percent this year, iM Securities Co analyst Park Sang-hyun said in a note.
“If exports slow down, especially semiconductors, amid a deteriorating economy that is not expected to improve anytime soon, downside risks to domestic GDP growth in the first quarter of 2025 are likely to increase,” he said.
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