Seoul: The central bank on Thursday raised its economic growth forecast for South Korea to 0.9 percent for this year amid signs of a recovery in consumption and eased uncertainties surrounding the United States' tariff scheme.
According to Yonhap News Agency, the revision by the Bank of Korea (BOK) marks a 0.1 percentage-point increase from its previous forecast of 0.8 percent issued in May. The adjustment came amid signs of a recovery in private consumption, partly fueled by the government's supplementary budget and the recent conclusion of a tariff deal with the U.S., which experts say helped avert the worst-case scenario for South Korea.
The revised outlook is on par with an earlier projection made by the government. The International Monetary Fund (IMF) presented a bleaker outlook of a 0.8 percent growth for South Korea this year, while the Organization for Economic Cooperation and Development (OECD) has projected a growth rate of 1 percent.
Presenting a slightly more optimistic outlook, the BOK kept the key interest rate unchanged at 2.5 percent, remaining vigilant about financial stability risks stemming from rising housing prices in Seoul and elevated household debt. BOK Gov. Rhee Chang-yong said earlier that the government's first and second supplementary budgets are expected to raise this year's growth rate by about 0.2 percentage point.
The first supplementary budget, totaling 13.8 trillion won (US$9.94 billion), had already been reflected in previous projections, while the second supplementary budget of 31.8 trillion won was only incorporated into the latest outlook, according to the BOK. The central bank also noted that the outcome of trade negotiations with the U.S. and the recent South Korea-U.S. summit had largely remained within the range of its initial scenario.
Late last month, Seoul and Washington announced a tariff deal under which the U.S. imposes a 15 percent tariff on South Korean imports, down from the initially threatened 25 percent, in exchange for South Korea's pledge to invest US$350 billion in the U.S. For next year, the BOK maintained its growth forecast at 1.6 percent.
Despite the upward revision, the outlook for 2025 still remains well below the country's estimated potential growth rate of 2 percent, which means the maximum pace at which the economy can grow without fueling inflation. If realized, this year would mark the first time South Korea's annual growth rate falls below that threshold and the slowest expansion since 2020.