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Korea’s government estimates that the country’s economy will grow by a mere 1.8% in 2025, marking the first time in two years that the economy’s actual growth will fail to meet its potential growth of around 2%.
 
The growth rate could lag even further if the aftermath of the Dec. 3 martial law debacle continues to snowball. The current situation calls for an early resolution of political uncertainty as well as aggressive economic countermeasures such as the implementation of a supplementary budget.
 
The Ministry of Economy and Finance predicted a 2025 growth rate of 1.8% in its economic policy direction report for the year released Thursday. This projection is 0.4 percentage points lower than the estimate in July 2024.
 
This sharp downgrade in the projected GDP growth reflects the government’s belief that the economy will be hit hard by Donald Trump’s victory in the US presidential election and the insurrection attempt that began on Dec. 3, 2024.
 
Within the government, concerns abound that prolonged political uncertainty triggered by the attempted insurrection will further slow growth. The government claims that the current projections do not fully account for the shock sparked by the attempted self-coup, indicating that a further growth decline is to be expected.
 
The government specifically lowered its prediction for exports by the largest margin. Its current estimate for export growth is 1.5%, a whopping 4.5 percentage points down from its previous prediction.
 
The weaker-than-expected export flows in the second half of 2024 combined with the expected negative impact of Trump’s second term on the export front factored into the sharp downgrade.
 
The outlook for private consumption and capital investment, the main pillars of Korea’s economy, is as dire as the one expected for exports. The government estimates that 120,000 jobs will be added next year, a number that does not meet initial predictions.
 
In response to such predictions, the government put forth measures to stimulate the economy in its policy direction report. 
 
At the heart of the measures are a 2.5 trillion won increase in fund investment through changes in the fund management plan and an expansion of public sector investments. In addition, the government has also proposed measures to stimulate private consumption, such as cutting the individual consumption tax on vehicles and issuing coupons worth up to 30 billion won to discount accommodation costs when lodging outside the metropolitan area.
 
The government has also moved to implement additional economic countermeasures. 

“Taking into consideration the great uncertainties domestically and overseas, we will review overall economic conditions such as the development of the new US administration’s policies and the state of the private sector economy within the first quarter and take additional measures to bolster the economy if necessary,” said Choi Sang-mok, acting president, at an expanded meeting of ministers related to the economy hosted at the central government complex in Seoul.
 
Sources close to the administration believe that the Ministry of Strategy and Finance, which sets the budget, has left open the possibility of a supplementary budget.
 
The approval of the supplementary budget is expected to emerge as a major issue in the national consultative body set up by the ruling and opposition parties on Tuesday.

By Ahn Tae-ho, staff reporter

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