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South Korea's Economy Contracts Again as Tariff Pressures and Political Instability Weigh

GDP shrank by 0.2% in Q1 2025, driven by weak domestic demand and exports, as policymakers prepare fiscal and monetary measures to counter worsening economic conditions.

Shipping containers are seen at Pyeongtaek port in Pyeongtaek, South Korea, April 15, 2025. REUTERS/Kim Hong-Ji/File Photo
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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

Overview

  • The Bank of Korea reported a 0.2% quarter-on-quarter contraction in Q1 2025, marking the second decline in three quarters.
  • Exports to the U.S. fell by over 14% in April's first 20 days, reflecting the impact of U.S. tariffs on key South Korean industries like steel and automobiles.
  • The International Monetary Fund slashed South Korea's 2025 growth forecast to 1%, down from 2%, citing trade tensions and political uncertainty.
  • The government announced a 12 trillion won supplementary budget to stimulate growth, while the central bank signaled an interest rate cut in May with further easing possible.
  • Political instability following the impeachment of President Yoon Suk Yeol has dampened consumer and business confidence, delaying economic recovery efforts.