South Korea sharply trims GDP growth forecast after martial law fiasco

The Finance Ministry sees the economy now growing 1.8 per cent in 2025 after expanding 2.1 per cent last year, it said in a statement on Thursday

By Sam Kim

 

South Korea sharply cut its economic growth forecasts for this year, reflecting the fallout from impeached President Yoon Suk Yeol’s martial law debacle and the clouds hanging over the trade-reliant nation from Donald Trump’s tariff plans.

 

The Finance Ministry sees the economy now growing 1.8 per cent in 2025 after expanding 2.1 per cent last year, it said in a statement Thursday. Those projections are down from July’s forecasts of 2.2 per cent growth for last year and 2.6 per cent for 2025, and underscore the pressure the economy faces from weaker private consumption and easing export momentum.

 

 

Global uncertainties are among key risks South Korea faces with demand for memory chips at risk of a correction and competition among export-reliant economies intensifying, the ministry said. Growing uncertainties over outflows of money to the US and South Korea’s political situation are also likely to continue, it said.

 

South Korea is reeling from Yoon’s short-lived declaration of martial law on Dec. 3, which led to his impeachment and suspension of his duties with the Constitutional Court set to decide his fate. His surprise move plunged the country into its worst constitutional crisis in decades and undermined investor sentiment.

 

The government’s 2025 outlook is 0.1 percentage point lower than the view offered by the Bank of Korea in November. Governor Rhee Chang-yong told reporters last month the central bank might further trim its 2025 growth forecast when it meets in February. 

 

The BOK and government have pledged to offer unlimited liquidity if necessary to limit the economic fallout from the political crisis. Speculation is growing among some economists that the BOK may lower its benchmark interest rate in January, in what would be a third consecutive cut since a policy pivot in October.

 

Bank of Korea Governor Rhee Chang-yong said on Thursday continued rate cuts could become a source of anxiety as he vowed to closely monitor risk factors to determine the pace of the bank’s monetary policy.

 

There’s also a growing chance that GDP may contract at the start of 2025 and the economy may end up expanding less than 1.7 per cent this year, iM Securities analyst Park Sang-hyun said in a note.

 

“If exports slow down, especially semiconductors, amid a deteriorating economy that is not expected to improve anytime soon, downside risks to domestic GDP growth in the first quarter of 2025 are likely to increase,” he said.