This is due to growing concerns that exports, which have been supporting the economy, may slow down. The Bank of Korea predicted that if friction due to the U.S. tariff policy intensifies, the economic growth rate outlook may become even lower than it is now.
On the 25th, the Bank of Korea announced in its "Revised Economic Outlook" that Korea's economic growth rate for this year will be 1.5%, down 0.4% from the forecast three months ago.
The forecast was 1.8%, unchanged from the previous estimate. "Recently, the US tariff policy and the weakening economic sentiment have increased pressure to reduce exports and domestic demand, and the outlook for this year has been negative," said Kim Eun, assistant vice governor of the Bank of Korea.
"Looking at the future growth trend, we expect political uncertainty to be gradually alleviated in the second half of the year, and financial conditions to improve," Kim said.
"The economic situation is expected to improve as the economy eases," he said, adding, "However, this growth path will be greatly influenced by changes in the general environment, the domestic political situation, and government stimulus measures."
For now, South Korea's growth rate is expected to be most affected by the U.S. tariff policy. The Bank of Korea analyzed the development of trade frictions around the world by scenario, and found that the tariff policy between the U.S. and other countries would have a major impact on the growth rate of South Korea.
If smooth negotiations are held and global trade tensions are resolved soon, the growth rates for this year and next year could be 0.1 percentage points and 0.3 percentage points higher, respectively, than the baseline forecast.
On the other hand, if trade friction intensifies and high tariffs are imposed, the growth rates for this year and next year will be 0.1% and 0.4% lower, respectively, than the base forecast.
This is a scenario in which tariffs are significantly increased this year and then maintained for next year, resulting in further retaliatory tariffs and exacerbating trade policy instability.
The Bank of Korea predicts that construction investment will fall by 6.7% in the first half of this year due to the continued slump in the construction industry.
"Construction investment is expected to continue to slow down due to the prolonged high interest rate environment and the COVID-19 virus outbreak," said Park Chang-hyun, head of the research division.
"Construction costs have risen significantly since the pandemic began," he said, explaining, "The decline in orders and construction starts that has continued to this day has continued for a considerable period of time and shows an unfavorable trend."
The Bank of Korea maintained its previous outlook, predicting that consumer prices will rise by 1.9% this year and next.
However, the upward trend in the dollar/won exchange rate that had continued since the declaration of emergency martial law last year has somewhat subsided. However, the Bank of Korea is considering future trends in exchange rates and international oil prices, as well as the government's policy.
The government believes that prices may move due to the government's price stabilization measures. The outlook for the employment market and trade terms is also not bright. The number of employed persons is expected to increase by 100,000 this year and 110,000 next year, down from 160,000 last year.
"This is because amid sluggish employment in the manufacturing industry, the employment slump is expected to worsen in the construction and face-to-face service industries," Kim said.
The current account surplus is expected to be $75 billion this year and $70 billion next year, down from last year.
This is a decrease of $5 billion (approximately 745 billion yen) from the forecast of $80 billion (approximately 11.9 trillion yen) in November last year.
This represents a decrease of nearly $25 billion (approximately 3.72 trillion yen) compared to the previous fiscal year (2016 total of 4.7 trillion yen).
2025/02/26 07:03 KST
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