South Korea's Growth Forecast Cuts Due to Trade Fears

Seoul, South Korea (AP) - South Korea's leading economic think tank has downgraded its growth forecast for the country for the second time in four months due to concerns over the potential impacts of U.S. President Donald Trump's expanding tariffs.

The Korea Development Institute (KDI) now projects South Korea's economy to grow by 1.6% in 2025, 0.4 percentage points lower than its previous estimate in November.

KDI economist Kim Jiyeon cited the "deterioration of the trade environment" post-Trump's inauguration as a significant factor. Political instability from President Yoon Suk Yeol's impeachment and criminal indictment after a brief martial law period has also contributed to the forecast reduction.

Domestic demand remains sluggish due to subdued consumer spending and a deteriorating job market. Exports are also slowing, with most key industries, except semiconductors, facing challenges in gaining momentum, said Jung Kyuchul, head of KDI's macroeconomic analysis department.

Jung warned that KDI may further lower its growth projections if Trump's trade actions intensify or South Korea's political turmoil continues.

"We had initially assumed Trump's tariff increases would be gradual and unlikely to occur as swiftly as we've seen recently, such as the recent tariffs targeting China," Jung said. "We expected uncertainties to subside after the Trump administration took office, but instead, we've seen them escalate."

This week, Trump announced plans to impose 25% tariffs on foreign steel and aluminum, following last month's 10% duties on all Chinese imports as part of an aggressive global trade reset.

Jung noted that the steel and aluminum tariffs are unlikely to significantly impact South Korea's economy, as these products account for less than 1% of exports to the United States. However, Jung expressed concern over Trump's consideration of tariffs on automobiles, semiconductors, and pharmaceuticals.

"Our semiconductor exports are substantial, so any impact on that sector could have significant economic consequences," Jung said.