The Korea Institute for International Economic Policy (KIEP), a government-funded research institute, has lowered its global economic growth forecast for this year from the previous 3.0% to 2.7%, a decrease of 0.3 percentage points. Factors such as the introduction of universal tariffs in the United States, the spread of global protectionism, the delayed recovery in China, financial instability, and liability crises are all contributing to the downward revisions of growth forecasts for major countries.
On the 13th, KIEP released its report titled '2025 World Economic Outlook' and noted, "While the global economy will continue a gradual recovery, risks such as a drastic change in trade order, uncertainty in currency policy, and reverse asset effects will act in a complex manner, causing growth to inevitably slow down." This forecast is the lowest since the 21st century, excluding the dot-com bubble in 2001, the global financial crisis in 2009, and the COVID-19 pandemic in 2020.
In particular, the growth rate of the United States has been lowered from 2.1% to 1.3%, a decrease of 0.8 percentage points. The analysis suggests that the implementation of a 10% universal tariff, strengthened reciprocal tariffs, and phased import halts on Chinese goods could lead to a contraction in private consumption and investment. KIEP stated, "The pressure of rising prices due to tariff increases, shrinkage in global trade, and the potential cutback in government expenditure have reduced policy responses." Experts in international economics predict that the U.S. base interest rate will remain at an average of 3.8% by the end of this year.
China's growth forecast has been adjusted down from 4.5% to 4.1%. Despite policies to stimulate consumption, such as the "swap old for new" program, and increased infrastructure investment, long-term trade friction with the United States, a property market slump, and weakened investment sentiment are expected to constrain growth. Among the 47 international economic experts surveyed by KIEP, 26 (55%) responded that "the Chinese economy will weaken to a noticeable extent."
The European Union (EU) is expected to maintain a growth rate of 0.8%, the same as before. However, forecasts for major countries such as Germany (0.0%), France (0.6%), and Italy (0.3%) have been lowered, while the United Kingdom has been adjusted to 1.0%. In contrast, Spain is projected to have a favorable growth rate of 2.6% due to increased tourism and consumption.
Japan's growth forecast has been downgraded from 1.0% to 0.6%. Although domestic demand is recovering due to wage increases and increased facility investments, the analysis indicates that the impact of U.S. tariff policies, persistent high prices, and the delayed recovery of domestic demand will lead to a contraction in exports and corporate investments.
Among emerging economies, India is expected to maintain a solid growth rate. Thanks to increased private consumption and government expenditure, it is projected to grow by 6.4% this year. The ASEAN-5 countries are expected to see a growth rate of 4.6% due to trade contraction resulting from tariffs, while Russia and Brazil are anticipated to have low growth rates of 2.0% and 2.1%, respectively.
The outlook for global trade has also worsened. KIEP has lowered the world's trade growth rate forecast from the previous 2.9% to 2.3%, a decrease of 0.6 percentage points. The report warns, "The effective tariff rate in the United States has risen to its highest level since the Great Depression, and the protectionist trend is accelerating the restructuring of global supply chains and economic blocs." In fact, the United States is signaling the possibility of renegotiation of the US-Mexico-Canada Agreement (USMCA), indicating a deepening atmosphere of trade friction with allied countries.
The financial markets have also been identified as a source of instability. According to the report, the total global liability reached a record high of $324 trillion in the first quarter of this year. Particularly, the average liability ratio in emerging economies has reached 245%. KIEP expressed concern that, "If financial conditions suddenly tighten, a vicious cycle of falling asset prices, contraction in consumption and investment, and expanded credit risk could rapidly spread the crisis."
Meanwhile, KIEP projected that the global economy will make a slight rebound to 2.9% next year (2026). While the United States (1.6%), Germany (1.0%), and France (0.9%) are expected to show signs of recovery, Japan (0.4%) and China (4.0%) are anticipated to have limited increases.
A KIEP official emphasized, "A structural low-growth phase may continue," and added, "Resolving global trade conflicts, strategies for responding to supply chain restructuring, and managing asset market risks will be key policy challenges."