Yoon impeachment, Trump tariffs could push Korea's growth forecast close to 1 percent

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Yoon impeachment, Trump tariffs could push Korea's growth forecast close to 1 percent

Published: 13 Apr. 2025, 13:26 Updated: 13 Apr. 2025, 21:29

Audio report: written by reporters, read by AI

A building in Seoul filled with rent notices on Feb. 25 [YONHAP]

The outlook for the Korean economy is darkening rapidly, both at home and abroad, as major global investment banks continue to downgrade their growth forecasts and warn that the country could experience negative growth in the first quarter of 2025.

Korea’s Ministry of Economy and Finance has also acknowledged that the risk of an economic slowdown is increasing in light of mounting external pressure, especially from the United States’ trade policies.

Nomura Securities economist Park Jeong-woo on Friday revised the forecast for Korea’s GDP growth in 2025 to 1.2 percent down from 1.5 percent, citing the impact of March wildfires and the impeachment of former President Yoon Suk Yeol.

Park projected a quarter-over-quarter contraction of 0.1 percent for the first quarter of the year — a reversal from the slight 0.1 percent growth recorded in the fourth quarter of 2024.

Kim Jin-wook, economist at Citibank, said the Bank of Korea is likely to lower its own growth forecast to a range of 1.0 to 1.2 percent, down from the current projection of 1.5 percent. He pointed to the Donald Trump administration’s tariff policy as a major source of downside risk for the Korean economy.

Seoul seen from Namsan in central Seoul on Feb. 2 [YONHAP]

Although the U.S. government recently announced a 90-day suspension of reciprocal tariffs for countries other than China, it has maintained a 25 percent tariff on goods such as automobiles, steel and aluminum.

Compounding the pressure are Korea’s own domestic challenges, including delays in passing a supplementary budget due to political instability following the declaration of martial law and Yoon's impeachment.

More pessimistic projections have already surfaced. The London-based Capital Economics expects Korea's economy to expand 0.9 percent this year while JPMorgan has offered an even bleaker estimate of 0.7 percent.

The Korean government’s internal assessment has grown more negative as well.

Cargo stacked at the Pyeongtaek Port in Gyeonggi on April 9 [YONHAP]

“With domestic demand recovery delayed in areas such as consumption and construction investment, and with labor market difficulties persisting in vulnerable sectors, downward pressure on the economy is increasing due to worsening external conditions related to U.S. tariffs,” wrote the Ministry of Economy and Finance in its April edition of the Green Book, a monthly economic report.

This marks the fourth consecutive month that the Green Book has included the phrase “increasing downward pressure” but was the first April edition to explicitly cite “worsening external conditions due to U.S. tariff impositions” — reflecting a growing concern regarding the compounded impact of internal weakness and external shocks.

The ministry further warned that “deteriorating trade conditions due to tariffs imposed by major economies are heightening volatility in global financial markets and raising concerns regarding a slowdown in trade and growth.”

In response, the government said it would “do everything possible to respond to trade risks, including the swift implementation of a necessary supplementary budget to support affected businesses and bolster industrial competitiveness.” It also pledged to intensify efforts to revive the real economy through job creation, construction support and aid for small businesses.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.

BY KIM KYUNG-HEE, KIM WON [[email protected]]