OECD slashes Korea's 2025 growth outlook to 1%

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OECD slashes Korea's 2025 growth outlook to 1%

Published: 03 Jun. 2025, 17:56 Updated: 03 Jun. 2025, 20:40

KIM JU-YEON
[email protected]

Audio report: written by reporters, read by AI

Shipping containers are stacked at Pyeongtaek Port in Gyeonggi on June 1. [YONHAP]

The Organisation for Economic Cooperation and Development (OECD) on Tuesday further slashed Korea’s 2025 economic outlook to 1 percent, warning that escalating trade tensions are likely to weaken exports and dampen corporate investment.

The estimate is a 0.5 percentage point cut from its March projection, which was already lowered by 0.6 percentage points to 1.5 percent. The latest revision marks Korea as the country with the second-largest projected decline among major economies, trailing only the United States, whose outlook was cut from 2.2 percent to 1.6 percent.

The OECD pointed to former President Yoon Suk Yeol’s short-lived martial law implementation in December last year as a blow to an already weak domestic demand.

“Consumer and business confidence have been subpar,” the OECD said in its twice-yearly economic outlook report, Tackling Uncertainty, Reviving Growth, released Tuesday.

The organization identified tariffs as a primary factor behind the bleak outlook, adding that Korea has significant direct and indirect exposure to U.S. trade policy. The OECD added that a prolonged slowdown among Korea’s key trading partners and the spread of protectionism could pose further challenges for the country’s trade-reliant economy.

Korea’s key export-heavy industries, including steel, aluminum and automobiles, have been hit with a 25 percent tariff, and U.S. President Donald Trump has promised to increase tariffs on imported steel to 50 percent.

"Korea has considerable trade exposure to the United States, directly and through its participation in global value chains,” the OECD said, noting that the Trump administration effectively increased tariff rates applying to Korean exports to the United States to 16 percent from 1 percent.

In its policy recommendations, the OECD called for additional monetary easing to offset weak domestic demand and stimulate investment amid heightened uncertainty. The think tank acknowledged that short-term fiscal support may be needed to bolster weak domestic demand and investment, but cautioned against long-term fiscal spending, citing a rapid increase in public debt and past failures to reduce budget deficits according to plan.

The government and opposition should commit to placing public finances on a sustainable path following any agreement on additional spending, the report added.

The OECD forecast for Korea remains more optimistic than domestic projections by the Bank of Korea and the Korea Development Institute, both of which estimate 0.8 percent growth. It is in line with the International Monetary Fund’s 1 percent estimate.

The consumer price inflation rate is expected to be 2.1 percent this year, up from the previous outlook of 1.9 percent.

The OECD retained its previous 2.2 percent growth forecast for Korea in 2026. It revised down the inflation rate in that year to 2 percent from 2.1 percent.

BY KIM JU-YEON [[email protected]]