Seoul: The Bank of Korea (BOK) on Thursday sharply lowered its outlook for South Korea's economic growth this year to 0.8 percent, citing sagging consumption and slowing export growth amid uncertainties stemming from Washington's tariff measures.
According to Yonhap News Agency, the revised real gross domestic product (GDP) outlook marks a 0.7 percentage-point drop from the central bank's previous forecast of 1.5 percent issued in February. The adjusted figure falls far below the country's estimated potential growth rate of 2 percent, which means the maximum pace at which the economy can expand without triggering inflation. If realized, this year would mark the first time South Korea's annual growth rate dips below that threshold.
Underscoring the bleak outlook and amid benign inflation, the BOK also cut its key interest rate by a quarter percentage point to 2.5 percent. In the first quarter, South Korea's real GDP contracted 0.2 percent from the previous quarter, which marked the first on-quarter contraction in nine months. On a year-on-year basis, the economy contracted 0.1 percent during the January-March period.
The unexpected contraction came as former President Yoon Suk Yeol's imposition of martial law in December caused political chaos and dampened consumer spending. Yoon was removed from office last month, and a subsequent presidential election is scheduled to take place on Tuesday.
Another key factor weighing on the economy is the U.S.' sweeping tariff measures. U.S. President Donald Trump announced reciprocal tariffs, including a 25 percent levy on South Korean goods, though implementation was later postponed for 90 days. Trade negotiations are currently under way between South Korea and the U.S., with the two sides aiming to reach a "July package" agreement on trade and related issues by July 8.
Exports, a key economic growth engine for South Korea, increased 3.7 percent on-year in April, marking a third consecutive month of increase. However, shipments to the U.S. declined significantly due to Washington's steep tariffs.