Asean research office slashes Korea's growth forecast to 1.6%

Home > Business > Economy

Asean research office slashes Korea's growth forecast to 1.6%

Published: 21 Mar. 2025, 17:11 Updated: 21 Mar. 2025, 18:54

SHIN HA-NEE
[email protected]

Audio report: written by reporters, read by AI

An empty restaurant in Seoul on Feb. 25 [NEWS1]

The Asean+3 Macroeconomic Research Office (AMRO) became the latest forecaster to slash Korea’s growth outlook, lowering its projection for the country’s GDP expansion this year by 0.3 percentage points to 1.6 percent.

The Singapore-based research body expects that export growth moderation, dragged down by U.S. protectionist measures, would offset a rebound in demand in its Annual Consultation Report on Korea released on Friday. The latest report follows an annual consultation visit by an AMRO delegation in November of last year.

The revision marked a 0.3 percentage point drop from the organization’s December forecast of 1.9 percent.

The 1.6 percent figure is in line with the Korea Development Institute’s Feb. 11 forecast, and slightly more optimistic than the Bank of Korea’s (BOK) 1.5 percent announced on Feb. 25. But it fell far below the Ministry of Economy and Finance's projection of 1.8 percent and the International Monetary Fund’s (IMF) 2 percent, which were both announced in January before the impact of the Donald Trump administration’s tariffs began to materialize. The IMF will announce an updated outlook in April.

AMRO expects facility investment and private consumption to drive growth this year, while the construction sector will continue to weigh heavily on the economy.

“In the near term, domestic demand is expected to pick up and play a greater role in driving growth,” it said.

Higher wages and slower inflation could stimulate the recovery of private consumption, which was persistently weak throughout last year.

Yet the semiconductor industry is expected to reach its peak mid-year and subsequently enter a downcycle, especially in legacy memory chip demand, leading to slower export growth. Higher U.S. tariffs and weakening demands for intermediate goods from China could further drag shipments down, according to AMRO.

Citing a series of sudden growth slowdowns in major economies — spurred by U.S. President Donald Trump’s tariff rollouts — and political uncertainty as key challenges, AMRO expects that the recent monetary easing by the BOK could facilitate demand recovery.

“Although the rate reductions may lead to increases in household debt, it can help alleviate the debt burden of households for existing borrowers and spur domestic spending,” AMRO suggested.

The organization also called for industrial diversification to increase the manufacturing sector’s resilience and demographic policies to address the looming population crisis.

“The Korean government will continue to closely communicate with international organizations such as AMRO in order to continue with thorough monitoring of our economic situation,” said the Finance Ministry in a release.

The economic forecast for Korea has been growing even bleaker since the start of the year as Trump’s aggressive trade policies begin to affect the global economy.

As such, the BOK has repeatedly signaled one or two additional rate cuts for the remainder of the year, prioritizing growth.

However, with the U.S. Federal Reserve remaining in wait-and-see mode amid heightened tariff uncertainty, the current 1.75 percentage point gap in key interest rates with the United States could deter the Korean central bank from further easing.

The Fed held its policy rate steady in the 4.25 to 4.5 percent range on Wednesday, citing elevated uncertainty, but still kept two additional cuts for the year on the table.

BY SHIN HA-NEE [[email protected]]