[Editorial] Economic outlook for 2025

The South Korean government on Thursday put out a gloomy projection for the country’s economic growth in 2025 amid a slew of challenges ahead, including political turmoil at home and growing trade-related uncertainties abroad.

The Finance Ministry said the Korean economy is forecast to grow 1.8 percent this year, which is lower than the Bank of Korea’s forecast of 1.9 percent and the earlier projections of other financial organizations that ranged between 2 percent and 2.1 percent.

The latest outlook -- a downgrade from the 2.2 percent growth forecast made in July -- suggests worsening conditions in various sectors that could hinder the pace of economic growth, even when excluding the negative impact of the political chaos sparked by the impeachment of President Yoon Suk Yeol for his short-lived martial law declaration last month.

The key factors dragging down economic growth include sluggish domestic demand, higher trade barriers affecting exports, and a downward shift in the chip industry cycle.

During the press briefing, First Vice Finance Minister Kim Beom-seok noted that Korea is likely to witness “unprecedented uncertainties” in domestic and international fields that could hurt growth trajectories, financial markets and living conditions.

To grapple with the growing problems, the government will place top priority on maintaining “stable management” rather than kicking off new policy programs. After all, the government is currently unable to pursue bold new initiatives as Prime Minister Han Duck-soo, who assumed the role of acting President, was impeached last Friday and replaced by Deputy Prime Minister for Economic Affairs and Finance Minister Choi Sang-mok.

The government’s announcement of the 2025 growth outlook was followed by a meeting of ministers in charge of economic policies, where acting President Choi revealed the willingness of the government to implement additional stimulus measures for the economy in the first quarter, if necessary.

Choi said the government will review economic trends during the first quarter, a period when the country’s exports are expected to come under pressure related to the new US administration led by President-elect Donald Trump, whose protectionist trade policies could spell serious trouble for Korea, where economic growth depends heavily on exports.

Choi’s comment is interpreted as a sign that the government is now open to the option of drawing up a supplementary budget that aims to bolster domestic demand and soften the impact from a global trade battle.

Last year, the country’s overall economy managed to move forward thanks largely to the strong exports of chips and other core items. According to government data released Wednesday, Korea’s outbound shipments stood at a record $683.8 billion in 2024, up 8.2 percent from the previous year. Imports dropped 1.6 percent on-year to $632 billion, leading to a trade surplus of $51.8 billion.

At the heart of the impressive records last year was the semiconductor industry, where exports soared 43.9 percent on-year to $141.9 billion. Defying the overall decline in global semiconductor prices, Korean chipmakers pulled off strong performances by meeting demand for high-end products, such as high bandwidth memory chips.

But the government believes that Korea’s exports are poised to face a thorny path this year. According to the Korea Institute for Industrial Economics and Trade, should a second Trump administration implement its proposed 10 percent universal tariff and a 60 percent retaliatory tariff on Chinese goods, Korea’s exports to the US could shrink by as much as 14 percent. Given Trump’s penchant for tariff wars, as indicated by his campaign rhetoric, it is likely that a host of disruptive measures could be unveiled early in his term. The current leadership vacuum in Seoul could exacerbate these vulnerabilities.

The risks clouding Korea’s growth outlook underscore the importance of proactive countermeasures. The government must minimize adverse impacts through prudent trade policies and ensure that exports regain momentum in the new year.