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4d ago

South Korea's Economy Contracts 0.2% in Q1 2025 Amid Political and Trade Pressures

Weak exports, domestic demand, and U.S. tariff threats compound economic uncertainty following recent political upheaval.

Shipping containers are seen at Pyeongtaek port in Pyeongtaek, South Korea, April 15, 2025. REUTERS/Kim Hong-Ji/File Photo
This week, the International Monetary Fund sharply revised down its growth forecast for South Korea this year, cutting it from 2.0 percent to 1.0 percent
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According to the Korea Customs Service, as of mid-April, the country's exports had dropped by more than 5 percent compared to the previous year, with declines reported in nine out of the country's ten major export categories excluding semiconductors

Overview

  • The Bank of Korea reported a 0.2% GDP contraction in Q1 2025, marking the first negative growth in a year.
  • Export deceleration and sluggish domestic demand were key factors behind the economic downturn.
  • Political instability, stemming from December's martial law declaration and the April removal of President Yoon Suk Yeol, has shaken investor confidence.
  • U.S. President Donald Trump announced a 25% reciprocal tariff targeting South Korea, though its implementation is paused for 90 days, while auto and steel tariffs remain in place.
  • Bank of Korea Governor Rhee Chang-yong has suggested the earlier 1.5% growth forecast for 2025 may be overly optimistic given ongoing trade and political challenges.