Political uncertainty + weak domestic demand, South Korea's central bank lowers GDP forecast for 2025
The Bank of Korea has lowered its GDP forecast for 2025 to 1.6%-1.7%, down from 1.9% in November last year. This adjustment is influenced by political uncertainty and weak domestic demand. The economic growth rate for last year is expected to be 2.0%-2.1%. The central bank governor stated that maintaining the benchmark interest rate at 3% is a difficult decision, and a rate cut may be considered within the next three months
According to the Zhitong Finance APP, the Bank of Korea announced on Monday that it expects South Korea's economic growth in 2025 to be between 1.6% and 1.7%, down from the 1.9% forecast made last November. This downward adjustment of about 2 percentage points is mainly due to the political uncertainty caused by the brief state of emergency declared by the South Korean president on December 3, as well as weak domestic demand in the context of fragile economic sentiment.
According to data from the Bank of Korea, the economic growth rate of this fourth-largest economy in Asia last year was likely 2.0% or 2.1%, down from 2.2% two months ago, a result also affected by the most severe domestic air disaster that occurred on December 29 last year.
According to foreign media reports, the Bank of Korea plans to officially announce the revised economic outlook in February. The Bank of Korea predicts: "The trajectory of South Korea's economic development will depend on the timing of the alleviation of current political uncertainties, government stimulus policies, and the economic policies of the next U.S. government."
Last week, amid political turmoil, the Bank of Korea maintained the benchmark interest rate at 3% to support the weak won, which is also a wait-and-see approach taken before the second term of the Trump administration.
However, Bank of Korea Governor Lee Chang-yong stated at a press conference that considering South Korea's weak economic growth momentum, maintaining the interest rate was a difficult decision, and all board members expressed the need to keep the possibility of further rate cuts within the next three months