With GDP growth revised down for 2025, Korea needs to speed up extra budget plan

With South Korea’s economic growth forecast to weaken to as low as 1 percent, policymakers are urged to work on the extra budget proposal to boost the economy, while passing urgent business-related bills and setting up robust policy steps against a looming global trade war.

Concerns about the country’s slowing growth are mounting. On Feb. 19, British research firm Capital Economics, for instance, projected that Korea's gross domestic product growth would slump to a mere 1 percent in 2025, citing political turmoil and the slowdown in the real estate market.

The gloomy prospect comes as the political troubles over impeached President Yoon Suk Yeol continue and external factors like the tariff war initiated by the US government threaten to worsen the overall economic conditions for Asia’s fourth biggest economy.

While Capital Economics’ projection is lower than many other domestic and international institutions’ forecast for Korea’s GDP growth, other institutions still hold a pessimistic view. JPMorgan forecasts a 1.2 percent GDP growth, while Citibank sets the figure at 1.4 percent. The Finance Economy still sticks to the GDP growth rate of 1.8 percent, but the state-run think tank Korea Development Institute lowered its forecast by 0.4 percentage points to 1.6 percent on Feb. 11, down from its November outlook of 2 percent.

On Sunday, local media outlets reported that the Bank of Korea is also expected to lower its growth forecast to 1.6 percent due to worries that both domestic demand and exports would likely slow this year.

When the BOK froze the benchmark interest rates last month, it took into account a revised estimate that the economic growth for this year would be between 1.6 percent and 1.7 percent. According to a Feb. 20 blog post, the central bank opted for the lowered projection based on the political uncertainty triggered by Yoon’s Dec. 3 martial law attempt and weak domestic demand.

The BOK forecast the 2025 GDP growth would be 1.9 percent in November, a figure that is now seen as unrealistic. In fact, the optimistic forecast was based on the inaccurate outlook that the US would apply its new tariff policy from the first quarter of 2026 and the war between Ukraine and Russia would be resolved. But US President Donald Trump has laid out a disruptive “reciprocal tariff” plan for all trading partners, including Korea, in a way that upends the global trade rules, while adding to geopolitical uncertainty by moving closer to Russia and sidelining Ukraine.

Analysts in Seoul said that the central bank would formally revise its prediction to 1.6 percent when it announces an updated forecast on Tuesday to reflect the current sentiment and align with the latest economic developments. Some experts said even a forecast of 1.6 percent might turn out to be optimistic since a host of economic factors herald more troubles ahead.

On the export front, the government and the private sector are bracing for a drastic hike in US tariffs on key export items like semiconductors and automobiles — the two most important items that bolster the country’s export drive.

The government must push ahead with an extra budget plan estimated to be around 35 trillion won ($24.3 billion) to help shore up the economy while mapping out plans to deal with higher tariffs. But the government and rival political parties failed to produce an agreement on the extra budget or a special law on semiconductors on Thursday.

Although the participating parties have agreed on the need for a supplementary budget, they are still squabbling over details. Experts stress that a bipartisan agreement must be reached within the month to ensure the timely injection of funds. To revive the economy, financial support must be deployed without delay; any misstep in timing could render the effort ineffective.


koreadherald@heradcorp.com