South Korea's top economic think tank has revised its growth forecast for the country's economy, citing worries over the impact of U.S. President Donald Trump's escalating tariffs. The Korea Development Institute now predicts a growth rate of 1.6% for 2025, down by 0.4 percentage points from its previous estimate.
The institute highlighted the deteriorating trade environment following Trump's presidency as a significant factor. Additionally, political instability stemming from the impeachment and criminal indictment of President Yoon Suk Yeol has added to the economic challenges.
Weakening domestic demand, sluggish consumer spending, and a declining job market have further dampened economic prospects. While semiconductor exports remain a bright spot, other key industries are struggling to gain momentum.
The institute warned of the potential for further downward revisions if Trump's trade policies intensify or if South Korea's political turmoil persists. Recent tariff announcements by Trump, including plans for steel and aluminum duties, have raised uncertainties.
South Korea's acting leader and finance minister pledged to engage in negotiations with the U.S. administration to mitigate the impact of the impending tariffs. The country also plans to coordinate response measures with other affected nations like Japan and the European Union.
While steel and aluminum exports to the U.S. account for a small portion of South Korea's total exports, concerns loom over the possibility of tariffs on critical sectors like semiconductors. The country shipped approximately $4.8 billion worth of steel to the U.S. in the previous year.
The evolving trade landscape, coupled with internal political challenges, presents a complex scenario for South Korea. Analysts suggest that recent domestic developments could weaken the country's ability to navigate the shifting U.S. trade policies effectively.
