The government diagnosed that the downward pressure on the South Korean economy has increased for five consecutive months. As the domestic gross domestic product (GDP) contracted in the first quarter, economic experts are criticizing the government's assessment as being excessively delayed.
The Ministry of Economy and Finance stated in its recent economic trends report (Green Book) published on May 16 that "the recovery of domestic demand, such as consumption and construction investment, is delayed, and difficulties in employment centered in vulnerable sectors persist, while external conditions have deteriorated due to the imposition of tariffs by the United States, leading to a slowdown in exports."
Since using the expression "increased concerns about worsening economic conditions" in the Green Book last December, the government has continued to use the diagnosis of "increased downward pressure on the economy" starting in January this year. The government cites one of the main reasons for the recent economic slowdown as the tariff policy of the Donald Trump administration.
The Green Book includes evaluations stating for two consecutive months that "the global economy is experiencing persistent volatility in international financial markets due to the deterioration of trade environments, such as tariffs imposed by major countries, and therefore concerns about the slowdown in world trade and growth are rising."
According to the Korea Customs Service, exports in April increased by 3.7% compared to the same period last year, but daily average exports decreased by 0.7%. In particular, exports to the United States decreased by 6.8% compared to the same month last year.
Jo Sung-jung, head of economic analysis at the Ministry of Economy and Finance, noted that "the impact of tariffs is starting to appear from April exports," adding that "the situation is better than we were concerned about." He explained that "the effects of the 90-day reciprocal tariff suspension worked positively and that exports to regions outside the U.S. increased."
However, there are also points raised that it is difficult to attribute the current economic situation solely to external factors. As of March, production in the construction sector (-2.7%) and service sector (-0.3%) decreased compared to the previous month, and domestic demand continued to decline with retail sales and investment dropping.
Consumer sentiment and corporate sentiment indices have improved, but still remain below the benchmark (100). The consumer sentiment index (CSI) for April was 93.8, and the corporate business conditions survey index (CBSI) was 87.9, indicating that both consumers and corporations perceive the economic situation negatively.
Employment has also been affected. Last month, the number of employed persons increased by 190,000, but employment in manufacturing and construction is not recovering due to sluggish domestic demand. The number of young job seekers is on the decline, and the number of people not seeking jobs has increased for 12 consecutive months compared to the same period last year, indicating a serious blow to employment. The government plans to "continue to strengthen efforts to support employment, construction, and small businesses to recover the economy."
Economic experts point out that "South Korea has entered an economic recession," claiming that the government's economic diagnosis is significantly delayed.
In the first quarter of this year, the real GDP decreased by 0.2% compared to the previous quarter, and the International Monetary Fund (IMF) projected South Korea's economic growth rate at 1% for this year. The Korea Development Institute (KDI) also presented a GDP growth rate forecast of 0.8%, halving the previous forecast in just three months. Furthermore, this projection only reflects the basic tariff (10%) from the United States, and if reciprocal tariffs (15%) are additionally imposed between countries in the future, the growth rate is likely to decline further.
Joo Won, head of the Hyundai Economic Research Institute, stated, "Since the first quarter GDP has contracted and growth rate forecasts have been significantly downgraded, it should be considered that we have already entered a recession phase," and emphasized, "It is necessary to prepare a supplementary budget and cut interest rates."
Woo Seok-jin, a professor at Myongji University, also emphasized that "with the forecast figures of major institutions like the IMF and KDI being downgraded by nearly half, we must view the South Korean economy as effectively in recession," adding that "the government should not take the situation lightly and must engage in more proactive fiscal policy."
However, the government has shown a cautious stance towards the second supplementary budget. Jo Sung-jung, head of economic analysis at the Ministry of Economy and Finance, responded to questions about the possibility of a second supplementary budget, saying, "Since it has not been long since the essential supplementary budget was passed, swift execution is the top priority," and stated, "We expect to see the effects of the essential supplementary budget starting in the second quarter." He also noted, "We need to review the financial conditions, government bonds market conditions, and economic situation comprehensively to determine if additional supplementary budgets are necessary."