KDI halves 2025 growth outlook for S. Korean economy to 0.8 pct on heightened trade uncertainties

South Korea’s state-run economic think tank on Wednesday sharply cut its growth forecast for the local economy this year to 0.8 percent, citing rising global trade uncertainties and weakening exports.

The revised projection by the Korea Development Institute (KDI) represents a 0.8 percentage-point drop from its previous estimate of 1.6 percent released in February.

“Considering both domestic and external conditions, the South Korean economy is expected to see a slowdown in growth due to worsening trade conditions and sluggish exports,” the KDI said in its latest economic outlook report.

The institute pointed to a recent spike in global trade tensions, noting that the United States significantly raised tariffs in April, further heightening uncertainty in trade-related policies.

The KDI said while semiconductors have performed relatively well, overall exports have slowed due to weak performance in other sectors, adding that export conditions could further deteriorate in the coming months due to the tariff hikes.

The KDI’s latest outlook is more pessimistic than those of other major institutions.

The International Monetary Fund (IMF) recently projected 1 percent growth for the South Korean economy in 2025, while the Organization for Economic Cooperation and Development (OECD) and the Bank of Korea (BOK) forecast 1.5 percent growth.

“In light of the slowing economic momentum, macroeconomic policy should be managed with an accommodative stance,” the KDI recommended.

Regarding inflation, the KDI said consumer prices are likely to continue rising at a modest pace this year due to weak domestic demand and falling oil prices.

The KDI forecast consumer prices to rise 1.7 percent in 2025, followed by a slightly higher 1.8 percent increase next year as global oil prices stabilize and domestic demand sees a mild recovery.

Core inflation, which excludes food and energy, is also projected to remain subdued at 1.8 percent in 2025, before edging up to 1.9 percent next year, the KDI said.

The think tank also warned that demographic changes and rising economic uncertainty are putting downward pressure on the labor market.

The number of employed people is expected to increase by only 90,000 this year, down from 160,000 last year, with a further drop to 70,000 projected for 2026.

The unemployment rate is forecast to rise slightly to 3 percent in both 2025 and 2026, up from 2.8 percent last year.