Economic Outlook KDI ECONOMIC OUTLOOK | UPDATE 2025.02 February 11, 2025
The Korean economy is projected to grow by 1.6% in 2025, lower than 2.0% in 2024, as domestic demand weakness eases while export growth slows.
- Private consumption is expected to grow by 1.6%, up from 1.1% in 2024, as interest rate cuts take effect and political uncertainty gradually eases.
- Equipment investment is projected to increase by 2.0%, similar to 1.8% in the previous year, as external uncertainties expand despite interest rate cuts and strong momentum in the semiconductor sector.
- Construction investment is forecast to see negative growth of -1.2%, following the previous year's decline (-2.7%), as the prolonged downturn in orders received continues to weigh on the sector.
- Exports are expected to see only limited growth of 1.8%, down from the previous year’s strong expansion (6.9%), amid deteriorating trade conditions.
- Current account surplus is projected to remain substantial at around $90 billion, slightly lower than the previous year ($99 billion), as export growth moderates while domestic demand recovery remains subdued.
- Consumer price inflation is expected to reach 1.6%, down from 2.3% in the previous year, as demand pressures remain subdued.
- Number of employed persons is projected to increase by approximately 100,000, down from 160,000 the previous year, amid a declining working-age population and a modest recovery in domestic demand.
Ⅰ. Current Economic Conditions
- □ The Korean economy is showing signs of slowing growth as the recovery in domestic demand remains delayed and previously strong export growth adjusts downward.
- · Domestic demand remains weak as persistently high interest rates weigh on economic activity, compounded by deteriorating consumer sentiment amid political instability.
- · Despite favorable momentum in semiconductors, overall export growth is moderating due to weaknesses in other industries.
- □ Externally, the global economy is projected to sustain moderate growth this year, though downside risks are increasing, as indicated by heightened uncertainty surrounding U.S. trade policies.
- · Following President Trump’s election, trade conditions are expected to worsen amid strengthening protectionism, while uncertainty in trade policy is surging.
- · As oil prices climb on supply concerns, the U.S. dollar is appreciating, driven by strong economic growth, mounting inflationary pressures from tariff hikes, and expectations of postponed interest rate cuts.
- □ Given these domestic and external conditions, the Korean economy is expected to experience a slowdown as both domestic demand and exports show weak growth.
- · As high interest rates exert downward pressure on the economy, both domestic and external economic conditions have recently worsened, and employment growth is expected to slow amid weakening economic momentum.
Ⅱ. Domestic Economic Outlook for 2025
1. Major Assumptions on External Conditions
- □ The global economy is projected to sustain moderate growth in 2025, following the trend from 2024, though the global semiconductor market, which accounts for a high proportion of Korea’s exports, is assumed to experience only limited growth.
- · The IMF forecasts global economic growth at 3.3% for 2025, similar to its previous projection (3.2%).
- · Meanwhile, WSTS has revised down its 2025 forecast for global memory semiconductor trade value growth from 25.2% to 13.4%.
- □ Oil prices are expected to stabilize following a slight rebound, with the 2025 crude oil import price assumed at $75 per barrel, similar to the previous estimate ($74).
- □ The Korean won, as measured by the real effective exchange rate, is assumed to remain largely unchanged from recent levels.
2. Domestic Economic Outlook for 2025
- □ The Korean economy is projected to grow by 1.6% in 2025, lower than 2.0% in 2024, as domestic demand weakness eases while export growth slows.
- · Private consumption is expected to grow by 1.6%, up from 1.1% in 2024, as interest rate cuts take effect and political uncertainty gradually eases.
- · Equipment investment is projected to increase by 2.0%, similar to 1.8% in the previous year, as external uncertainties expand despite interest rate cuts and strong momentum in the semiconductor sector.
- · Construction investment is forecast to see negative growth of -1.2%, following the previous year's decline (-2.7%), as the prolonged downturn in orders received continues to weigh on the sector.
- · Exports are expected to see only limited growth of 1.8%, down from the previous year’s strong expansion (6.9%), amid deteriorating trade conditions.
- · The current account surplus is projected to remain substantial at around $90 billion, slightly lower than the previous year ($99 billion), as export growth moderates while domestic demand recovery remains subdued.
- □ Consumer price inflation is expected to reach 1.6%, down from 2.3% in the previous year, as demand pressures remain subdued.
- · Core inflation is also expected to remain at 1.5%, lower than the previous year (2.2%).
- □ The number of employed persons is projected to increase by approximately 100,000, down from 160,000 the previous year, amid a declining working-age population and a modest recovery in domestic demand.
- · The unemployment rate is expected to rise slightly to 2.9%, from 2.8% in the previous year.
- □ Compared to the forecast from the second half of 2024, the growth projection for 2025 (1.6%) has been revised down by 0.4%p (previously 2.0%), reflecting weaker domestic demand and exports amid deteriorating domestic and external economic conditions.
- · Domestically, the contraction in economic sentiment due to political instability, and externally, the deterioration of the trade environment following U.S. policy changes, were key factors in the downward revision of economic growth.
- · Private consumption growth (1.8% → 1.6%) has been revised down by 0.2%p, reflecting slowing export growth and weakened household sentiment.
- · Equipment investment growth (2.1% → 2.0%) has been slightly revised down reflecting heightened external uncertainties, while construction investment growth (-0.7% → -1.2%) has been further revised downward due to worsening funding conditions for construction companies and a slowdown in real estate market.
- · Goods export growth (1.9% → 1.5%) has been revised down as trade conditions deteriorated following President Trump's inauguration and adjustments to assumptions for global semiconductor trade value.
- · The current account surplus ($93 billion → $89.7 billion) has been slightly revised down, reflecting downward adjustments to both domestic demand and exports.
3. Risks to the Outlook
- □ Should trade disputes escalate amid persistently high uncertainty in the global trade environment, they could place significant downward pressure on the Korean economy.
- · If uncertainty regarding the target, timing, and scope of U.S. trade policy shifts persists, domestic and external investment demand could contract, further weighing on Korea’s exports.
- · Domestically, if political instability persists for an extended period, delaying the recovery of economic sentiment, the improvement in domestic demand could be constrained.
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