Gov’t projects 2025 growth at 1.8%

(Yonhap)

The South Korean government has projected the Korean economy to grow 1.8 percent in 2025, lower than the Bank of Korea’s forecast of 1.9 percent. It also lowered its growth forecast for the previous year to 2.1 percent from 2.2 percent.

The government announced the “Economic Policy Direction for 2025” on Thursday which includes these projections.

“The Korean economy is expected to face greater uncertainties than ever in 2025, driven by the new U.S. administration and domestic political turmoil,” Acting President and Minister of Economy and Finance Choi Sang-mok said during an economic ministerial meeting on Thursday. “With growth projected to slow to 1.8 percent, economic hardships for citizens are likely to intensify, along with concerns about external credibility.”

It is the first time in two years that the government has issued a growth forecast in the 1 percent range. The downturn in the semiconductor industry, a key sector, was the main reason for the low figure in 2023.

In 2025, the government explained that risks associated with Donald Trump’s election as U.S. president are expected to reduce Korea’s export growth to the 1 percent range from 8 percent the previous year and slow its domestic demand recovery.

The impacts from President Yoon Suk Yeol’s martial law declaration and his impeachment proceedings have not been explicitly reflected in the government‘s projection, so the actual growth rate is likely to fall even lower. Global investment banks such as Citi and JP Morgan lowered their forecasts for Korea’s economic growth for 2025 to 1.5 percent and 1.3 percent respectively after the martial law declaration.

To prevent an economic recession, the government announced an 18 trillion won ($12.22 billion) stimulus package, which includes securing 2.5 trillion won through changes in fund management plans and increasing public sector investment by 2.5 trillion won compared to 2024.

It also left open the possibility of a supplementary budget, which it had been cautious about, while also disbursing 330.6 billion won on Thursday, the highest amount ever allocated for livelihood-related projects.

To promote housing transactions, the government decided to extend the exemption on the heavy capital gains tax for multi-homeowners until May 2026. This measure, originally scheduled to end in 2025, will be extended by one year to prevent a supply cliff and increase transactions to stabilize the housing market.

“Given the high level of uncertainty at home and abroad, we will reassess the overall economic conditions, including the new U.S. administration‘s policy developments and the state of the private sector economy, during the first quarter and take measures to further strengthen the economy if necessary,” Choi said.