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2w ago

South Korea's Economy Contracts as Political and Trade Challenges Intensify

The economy shrank by 0.2% in Q1 2025, marking the first contraction in nine months, with political instability and U.S. tariffs weighing heavily on growth.

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

  • Bank of Korea data confirmed a 0.2% GDP decline in the first quarter of 2025, driven by weak domestic demand and falling exports.
  • Construction investment dropped 3.2%, facility investment fell 2.1%, and exports declined 1.1%, reflecting broad-based economic challenges.
  • Political turmoil following former President Yoon Suk Yeol's impeachment and trade tensions under U.S. tariffs have delayed recovery in consumer and business sentiment.
  • The Bank of Korea held its interest rate at 2.75% on April 17 but signaled a potential rate cut in May to address mounting economic risks.
  • The government announced a 12 trillion won supplementary budget and is engaging in trade talks with the U.S. ahead of the June 3 presidential election.