The Bank of Korea has significantly lowered its economic growth forecast for this year from 1.5% to 0.8%. This adjustment comes as the tariff shock from U.S. President Donald Trump has not been resolved, and domestic demand is not showing signs of quick recovery.
The Bank of Korea presented a revised economic forecast of 0.8% for this year's economic growth on the 29th. Previously, in February, it had lowered the forecast from 1.9% to 1.5%, determining that the economy would contract further within the next three months.
The Monetary Policy Committee of the Bank of Korea stated through a monetary policy direction resolution that "domestic demand is expected to gradually improve, but the pace will be slow," and "exports will see an expanded decline due to the impact of U.S. tariffs."
This downward adjustment of the economic growth rate had already been hinted at last month. In a briefing held immediately after the Monetary Policy Committee on the 17th of last month, Bank of Korea Governor Lee Chang-yong said, "Given the tariffs imposed by the Trump administration, such as the reciprocal tariff, tariffs on China, item-specific tariffs, and the basic tariff of 10%, the growth forecast scenario from February was too optimistic."
Not only the Bank of Korea, but several institutions have consecutively lowered their economic growth forecasts for Korea. On the 14th, the Korea Development Institute (KDI), a national research institute, significantly lowered its growth forecast for this year from 1.6% to 0.8%. The reasons cited were slow recovery in domestic consumer sentiment and delays and disruptions in the construction sector.
The Korea Institute for Industrial Economics and Trade also lowered its growth forecast from 2.1% to 1.0%, citing a deepening slump in exports and limited recovery in domestic demand. Similarly, foreign investment banks, including Goldman Sachs, Bank of America, and Citigroup, reported an average forecast dropping from 1.4% in March to 0.8% last month.
Looking overseas, Korea's economic contraction stands out. On the 21st, the World Bank presented a global economic growth forecast of 2.7% for this year, which is 1.9 percentage points higher than the Bank of Korea's forecast for the Korean economy (0.8%). This gap surpasses levels in 2021 (1.8 percentage points), 2022 (0.5 percentage points), 2023 (1.4 percentage points), and 2024 (0.7 percentage points).
The growth forecast for next year has also been lowered from 1.8% to 1.6%. The Monetary Policy Committee noted that "uncertainties regarding trade negotiations, government stimulus measures, and major countries' monetary policy directions are evaluated as very high concerning future growth paths."
The Bank of Korea maintained its consumer price inflation forecast for this year at the existing 1.9%, but lowered next year's forecast from 1.9% to 1.8%. The Monetary Policy Committee forecasted that "the inflation rate will likely maintain stability around 2% as upward pressures from increases in processed food and service prices are offset by falling international oil prices and low demand pressures."