KDI lowers 2025 growth forecast on export slowdown

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KDI lowers 2025 growth forecast on export slowdown

Published: 12 Nov. 2024, 17:58

A shopper browses at a supermarket in Seoul. [YONHAP]

Korea Development Institute (KDI) slashed the country's 2025 economic growth outlook to 2 percent Tuesday citing anticipated slowdown in exports despite improvements in domestic demand.

The figure marks a 0.1 percentage point cut from the previous estimate of 2.1 percent made in August.

“In 2025, our economy is expected to grow at a rate of 2 percent, down from 2.2 percent in 2024, as domestic demand gradually improves but export growth slows,” the state-run think tank said.

KDI also lowered its 2024 economic growth forecast to 2.2 percent from the 2.5 percent projected three months earlier.

KDI forecast that private consumption would grow 1.8 percent on year in 2025, up from the projected 1.3 percent increase this year, boosted by lower interest rates.

It expects facility investment to rise 2.1 percent next year, marking an increase from 1.6 percent in 2024, on the back of an upturn in the semiconductor industry and lower interest rates.

The Bank of Korea slashed its key rate by a quarter percentage point in October in what many believe to be the first of a series of rate reductions. The Korean central bank had kept the policy rate frozen at 3.5 percent, the highest in about 16 years, since January 2023 after delivering a series of rate hikes starting in August 2021.

KDI, however, lowered its export growth forecast for 2025 to 2.1 percent, a significant drop from the 7 percent on-year growth projected for 2024, due to ongoing uncertainties in the global trade market.

“If there is a sharp shift in U.S. trade policy, leading to contraction in global trade, it could have a considerable negative impact on South Korean exports,” KDI noted.

U.S. President-elect Donald Trump emphasized an “America First” approach during his campaign, which would pose potential challenges for Korea's trade-dependent economy if the incoming U.S. administration were to move forward with Trump-advocated broad tariffs on foreign-made goods entering the U.S.

The think tank expects consumer prices, a key gauge of inflation, to rise 1.6 percent on year in 2025, down from 2.3 percent from 2024 and below the target inflation rate of 2 percent, reflecting falling oil prices.

KDI projects the average import price of Dubai crude, Korea's benchmark, to reach around $74 per barrel in 2025 as oil demand from China softens.

In terms of employment, KDI estimates that the number of employed people will increase by 140,000 on year in 2025, a notable decrease from the on-year increase of 180,000 seen this year as the effect of a declining working-age population becomes more pronounced.

The International Monetary Fund (IMF) recently commented on the resilience of the global economy during the disinflationary period, projecting global growth to hold steady at 3.2 percent in 2025, unchanged from its forecast for 2024.

The IMF also maintained its growth forecast for Korea at 2.2 percent for 2025.

Yonhap