South Korea think tank holds growth outlook despite trade deal with US
KDI now expects only modest growth in goods exports over the next two years, as the negative impact of rising tariffs starts to take hold in the latter half of this year
[SEOUL] South Korea’s state-run think tank maintained its growth outlook for 2025, even as a last-minute trade deal with the US helped the nation dodge the worst of a punishing tariff hikes.
The economy will expand 0.8 per cent this year, the Korea Development Institute (KDI) said on Tuesday (Aug 12), in line with its May forecast. While a government stimulus package has boosted consumer sentiment, the gains are being offset by a downturn in construction investment and persistent export weakness due to higher US tariffs, KDI said in its semi annual report.
The recent trade deal, which caps US tariffs on South Korean exports at 15 per cent, down from a proposed 25 per cent, helped the country avoid a more severe blow. Still, the new terms are less favourable than a free trade agreement with the US, with KDI warning that tariff levels and uncertainty remain elevated compared with past years.
The escalating trade conflict between the US and other economies such as China and India could further worsen global demand, the think tank said. And if semiconductor tariffs in particular rise sharply, it would pose a significant downside risk to South Korea’s exports, the report added.
KDI now expects only modest growth in goods exports over the next two years, as the negative impact of rising tariffs starts to take hold in the latter half of this year.
South Korea’s economy is projected to grow 1.6 per cent next year as domestic demand recovers gradually despite weaker exports, the think tank said. Gross domestic product expanded by 0.6 per cent in the three months to June from the previous quarter, the Bank of Korea (BOK) said in July.
In May, the BOK nearly halved its 2025 growth forecast to 0.8 per cent from 1.5 per cent, citing US trade tensions and sluggish domestic demand. BLOOMBERG
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