Seoul: U.S. President Donald Trump's sweeping tariffs and potentially escalating global trade tensions could restrict South Korea's economic growth to 1.4 percent in 2026, as announced by the central bank.
According to Yonhap News Agency, the Bank of Korea (BOK) had previously maintained its growth forecast for 2026 at 1.8 percent but has significantly revised its 2025 projection downward to 1.5 percent, a 0.4 percentage point decrease from three months prior.
The BOK highlighted in an economic outlook report that "GDP growth for this year is expected to slow to 1.5 percent, significantly below the 1.9 percent forecast from the previous outlook, as domestic demand remains sluggish and export growth continues to decelerate."
Despite uncertainties in the trade arena, economic growth is anticipated to increase to 1.8 percent, driven mainly by a recovery in domestic demand by 2026. However, should trade conflicts intensify, the GDP growth is expected to decline by 0.1 percentage point in 2025 and 0.4 percentage point in 2026 compared to the baseline forecast.
The BOK warned of a worst-case scenario where the U.S. and other major countries impose "substantial retaliatory tariffs" this year, maintaining these elevated levels and increasing global trade uncertainties.
Trump has announced plans to impose a 25 percent tariff on all steel and aluminum imports starting March 12, along with "reciprocal" tariffs on U.S. imports to match duties imposed on U.S. exports by other countries. Washington is also considering tariffs on cars, semiconductors, and pharmaceuticals.
According to the central bank's optimistic scenario, where Washington imposes lower-than-expected tariffs on nations other than China, South Korea's GDP growth could rise to 1.6 percent this year and 2.1 percent in 2026.
The BOK advised that "Given high uncertainties regarding the U.S.' tariff policy, South Korea needs to explore new markets that can replace the U.S. while taking an active stance and exercising flexibility in tariff negotiations with Washington." Additionally, South Korea should consider purchasing more U.S. energy and agricultural products.