South Korea's Economic Growth Outlook Downgraded Amid Trump's Tariff Uncertainty

South Korea's top economic think tank, the Korea Development Institute (KDI), has revised down its growth outlook for the country's economy this year, citing increased uncertainties both at home and abroad. The KDI now projects the South Korean economy to grow by 1.6 percent in 2025, a 0.4 percentage-point decrease from its previous estimate made in November. This downward revision reflects the deteriorating trade environment following U.S. President Donald Trump's inauguration and political instability in South Korea.

The KDI noted that exports, which recorded 6.9 percent on-year growth last year, are expected to slow significantly to a 1.8 percent increase this year. This slowdown is primarily due to global trade tensions, including Trump's trade policies and the potential impact of U.S. trade restrictions on South Korean exports. The think tank also highlighted sluggish domestic demand as a key factor in slowing economic improvement last year, with conditions expected to gradually improve down the road as the effects of interest rate cuts materialize and political uncertainties subside.



Private consumption, which grew 1.1 percent in 2024, is forecast to accelerate to 1.6 percent this year. However, this figure has been revised downward from the 1.8 percent growth projected in November, reflecting weakened economic sentiment caused by political turmoil following President Yoon Suk Yeol's failed attempt to impose martial law. Facility investment is expected to grow 2 percent this year, slightly up from the 1.8 percent increase recorded in 2024, while the construction sector is projected to contract for the second consecutive year, declining 1.2 percent this year.

The KDI's revised growth projection has significant implications for the country's investment climate and attractiveness to foreign investors. The slower growth outlook, trade uncertainties, political instability, and sluggish domestic demand may lead foreign investors to reassess their investment strategies in South Korea. They may choose to invest in other countries with more stable economic outlooks or wait for clearer signs of economic recovery in South Korea before committing to new investments. Additionally, foreign investors may seek to diversify their portfolios to mitigate risks associated with the South Korean economy's slower growth.



In conclusion, South Korea's top think tank has revised down its economic growth projection for this year, citing increased uncertainties both at home and abroad. The slower growth outlook, trade uncertainties, political instability, and sluggish domestic demand may impact the country's investment climate and attractiveness to foreign investors. As the situation unfolds, investors should closely monitor the developments and adjust their strategies accordingly.