The First Crisis
Stalled Out: Weakening Industrial Competitiveness

The most obvious symptom of the Korean economy’s deteriorating health is the annual economic growth rate,
which now hovers in the 2% range, making the 5% rates posted just after the turn of the millenium seem mythical by comparison.
The Korean economy has, in other words, gotten real old, real fast.
And not just old, but ossified. How do we know this? Twenty years ago,
Korea’s main exports were semiconductors, cars, and chemicals.
Today, Korea’s main exports are...semiconductors, cars, and chemicals.
The economy lacks dynamism; there‘s no new blood circulating through its veins.
Over the past decade, the percentage of new market entrants has fallen to 6% from 9%;
market exits by incumbent firms also fell from 7% to 5% over the same period.
The patient not only has a weak heart, but a poor metabolism as well.


The Second Crisis
Cracks in the Facade: Declining Innovation Capacity

The patient looks weak. And the internals are in even worse shape.
The economy is plagued by numerous marginal enterprises,
or zombie firms, whose profits aren’t enough to pay the interest on their debts,
let alone the principal. Since the COVID pandemic, the number of marginal enterprises has skyrocketed.
The risk of widespread corporate insolvency is real and growing.
Having so much capital tied up in zombie firms hinders innovation.
Korea is considered an AI powerhouse,
but AI adoption rates in the country’s enormously important manufacturing sector sit at just 3.9%.


The Third Crisis
Storms Abroad: Upheaval in the Global Environment

To make matters worse, the playing upon which Korea achieved so much success — the global free trade regime — has been ripped out.
The Inflation Reduction Act (IRA) and the CHIPS and Science Act were the tools through
which the US did the deed. Both laws provide massive subsidies to firms that invest in the US.
This is why Samsung builds new factories in Texas and Hyundai puts up new production lines in Georgia instead of Korea.

And it would be a mistake to think of the current global trade environment has one of mere ’disputes.’ In 2023,
71% of all trade-distorting policies were promulgated by advanced countries that directly compete with Korea.
What we’re seeing is a fundamental transformation of the global industrial environment.
Korea was one of the first fast-followers and one of that model’s greatest success stories.
But it no longer represents a viable survival strategy.

Another issue: The green transition is coming and Korea is not ready for it.
The European Union (EU) Carbon Border Adjustment Mechanism (CBAM) is imminent,
but Korea’s energy mix remains dominated by fossil fuels, with renewables account for just 9.5% of power generation.
This lags far below global leaders like Germany (57.3%) and even China (32.6%).


Four Strategies for Tackling Korea’s Industrial Crisis
Strategy 1: AI and the Green Economy

We propose four strategies for tackling Korea’s multifaceted industrial crisis.
The first: embrace the AI-powered future.
It will not be enough to merely adopt new technology: Korean firms need to address real world-problems using AI solutions.
For example: wearable robotics embedded with AI tech for use in the construction sector and other industries
that are now suffering from a major shortage of skilled workers.

The same goes for green technologies. For POSCO, Hyundai, or any other major steelmaker to spend billions to convert
their pollution-intensive blast furnaces to more eco-friendly solutions (hydrogen-reduction, for example),
the government would have to implement Carbon Contracts for Difference (CCfDs)
or some other mechanism in order to offset risk and get companies moving down the path of decarbonization.


Strategy 2: Policy Reform

Among other things, Korea’s industrial innovation system is in need of a major overhaul,
and this has to start with a change in the industrial R&D ecosystem.
Rather than being misled by the ostensible 90% success rate,
industrial R&D should be assessed on the basis of their real market outcomes.
Industrial innovation is what happens when technologies achieve success in the market.

Korea also needs to completely reconsider its approach to attracting investment.
Successfully attracting investment requires a mix of tax incentives, financial subsidies, and human resources support.
Currently, these functions fall under the purview of different ministries.
This dispersed and opaque system makes attracting large-scale investment from global firms extremely difficult.

The country also needs to shift refocus its investment attraction efforts from firms to projects.
Korea should make every effort to participate in projects led by global leaders;
this will help build out entire industrial ecosystems in Korea, rather than just individual firms.

Another thing to consider: Korean firms make a lot of money overseas,
but currently have little incentive to repatriate this money and reinvest profits in Korea.
The government needs to see capital repatriation as a kind of capital “reshoring,”
and offer benefits commensurate with those extended to foreign firms investing in Korea.

As for the country’s zombie firms, the solution is not to simply let them close their doors forever.
The government needs to let firms capable of growing realize their potential by allowing them to divest unprofitable
or low-value-added lines of business and shift to newer or more promising ones.
Policies that enable this can create new engines of economic growth,
but will require proactive and attentive policy support.

As for the regulatory regime, well — reform requires a top-down approach.
We need to analyze and reform laws and policies that act as constraints on entire industrial sectors.

Regulatory reform should be done on a case-by-case basis.
We should seek to make improvements to individual statutes to maximize regulatory consistency
and predictability and drive tangible change at the country’s businesses.


Strategy 3: Recalibrating Korea’s Foreign Policy

Next up: Korea also needs to rethink its global strategy.
For one, it needs to expand and strengthen cooperation with the US in critical strategic industries like biotech and semiconductors.

And when it comes to China, Korea should pursue a bifurcated strategy.
In areas where we still have the advantage, it is crucial that we maintain a super-gap with the Chinese competition.
In other areas, it is best to take a more pragmatic approach, and determine
where Korean firms can leverage the Chinese market and advanced manufacturing supply chains,
seeking out collaborative opportunities in segments where they are competitive.
For example, Korean suppliers could look to sell advanced electrical components to the Chinese EV sector.


Strategy 4: Upgrading Key Industries and Fostering Future Growth

Finally, Korea must address two other major challenges simultaneously.
The country must help its incumbent industries climb up the value-added ladder
while at the same time fostering an ecosystem that can create the next Samsung or Hyundai.

This is a daunting task. It’s like building a new ship while navigating a storm on the old leaky boat.
But we live in extraordinary times, and seeing Korean industry through the storm will require marshaling every resource available.


 

(Intro)
Hello. My name is Kyung-in HWANG, Director of the Office of Public Relations and Media at the Korea Institute for Industrial Economics and Trade (KIET).
As KIET marks its 50th anniversary, we are hosting a series of dialogues with leading international scholars
in which they share their insights on rapidly changing industrial conditions and major policy issues.

Today, we will be speaking with Dr. Guy Lalanne, Acting Head of Division — Productivity, Innovation, 
and Entrepreneurship at OECD Directorate for Science, Technology and Innovation.
Lalanne previously served as Deputy Director of the Macroeconomic Forecasting Division
and the Business Policy, R&D and Innovation Division at the French Ministry of Finance. 


Q1.
We understand the OECD recently built a database called QuiS,dedicated specifically to industrial policy.
Could you explain the background behind this initiative?

Q2.
Many countries are pursuing industrial policy on a significant scale, leading some to declare that we have entered a new era of muscular industrial policy.
However, in your contribution to IER, you note how the number of announced policies far exceeds the number of policies that have been actually implemented.
Are we really in a new era of tough industrial policy?

Q3.
In terms of policy instruments, direct fiscal support has been increasing, while the use of financial instruments (such as the creation of funds) appears to be declining.
What do you think is driving countries to choose this particular mix?

Q4.
Another notable feature is that once industrial policies are introduced,
they tend to persist over long periods without sunset clauses or termination, regardless of their effectiveness.
What do you see as the underlying cause of this tendency?

Q5. Looking at the areas receiving support, there has been a sharp increase in spending on the green transition, SMEs, and rising energy costs.
In your view, which of these areas is most likely to contribute to long-term productivity growth?


(Outro)
So far, I have been talking with Professor Guy Lalanne.
The 50th Anniversary Special Project: Dialogues with International Scholars will continue in the future,
so please show your interest and watch.
Thank you. 

 

(Intro)
Hello. My name is Kyung-in HWANG, Director of the Office of Public Relations and Media at the Korea Institute for Industrial Economics and Trade (KIET).

As KIET marks its 50th anniversary, we are hosting a series of dialogues with leading international scholars
in which they share their insights on rapidly changing industrial conditions and major policy issues.

Today we will be speaking with Shujiro URATA, Professor Emeritus at Waseda University.

Professor Urata is also chairman emeritus at the Research Institute of Economy, Trade, and Industry (RIETI) in Tokyo,
a Specially Appointed Fellow at the Japanese Center for Economic Research (JCER),
a Distinguished Senior Fellow at the Institute of Developing Economies (IDE-JETRO),
and chairman of the East Asian Economic Association (EAEA).


Q1.
Professor, you spoke about the global resurgence of industrial policy, including in Japan.
My first question is whether you could briefly walk us through how Japan's industrial policy has evolved since the end of World War II.

Q2.
As a leading authority on the Japanese economy, how would you assess Japan's industrial policy over the years?

Q3.
You have argued that the race among major countries to roll out competitive industrial subsidies could have unintended consequences.
What implications do you see this carrying for Japan?

Q4.
The semiconductor industry is arguably the single most important industry for both Korea and Japan.
And so I can’t can’t help but ask you the policies the Japanese government has pursued to foster its semiconductor industry.
Could you give us a brief overview?
What should Korea do to strengthen its own semiconductor industry?

Q5.
Lastly, I’d like to ask about the relationship between Japan and Korea.
These two countries find themselves caught between the United States and China,
occupying a dual role as both competitors and allies.

What does the future hold for this dyad?


(Outro)
So far, I have been talking with Professor Shujiro URATA.
The 50th Anniversary Special Project: Dialogues with International Scholars will continue in the future,
so please show your interest and watch.
Thank you. 
 

(Intro)
Hello. My name is Kyung-in HWANG,
Director of the Office of Public Relations and Media at the Korea Institute for Industrial Economics and Trade (KIET).

As KIET marks its 50th anniversary,
we are hosting a series of dialogues with leading international scholars in
which they share their insights on rapidly changing industrial conditions and major policy issues.

Today we're talking with ITIF President Rob Atkinson.

Rob Atkinson is the founder and president of ITIF,
one of the world’s leading science and technology policy think tanks

He also serves as a nonresident senior fellow at the Brookings Institution,
and as a member of the Science, Technology, and Innovation Council under the Canadian Academy of Sciences.

In the past, he was the first executive director of the Rhode Island Economic Policy Council.


Q1.
In your Industrial Economic Review article, you characterize China as a country pursuing a state-led, winner-takes-all strategy,
and you argue that this strategy could pose an existential threat to the South Korean economy.

Could you explain in greater detail how we got here and led our current moment?

Q2.
You point explicitly to weak productivity in the service sector as one of the culprits behind Korea’s stagnant growth, especially compared to years past.
You also argue that Korea needs to formulate a new, state-led productivity innovation strategy,
noting that could Korea could reference a similar strategy ITIF proposed in the American context.

Could you briefly go over its key features and point to some of the implications for Korea?

Q3.
In your article you briefly touch on how Korea’s zeal for private, after-school cram schools may actually hinder social and economic innovation.
How do you think reforming the current system, which is characterized by a preference for a handful of prestigious, “name-brand” universities,
to create a more flexible and autonomous learning environment could contribute to promoting innovation in Korea?

Q4.
Korean society has long been somewhat averse to taking risks and starting a business. 
Youth entrepreneurship in particular is declining,
and one public opinion survey has identified fear of failure as the biggest obstacle to entrepreneurship.

What policy tools should be considered to help address this issue?


(Outro)
So far, we've been talking with Chairman Rob.
The 50th Anniversary Special Project: Dialogues with International Scholars will continue in the future,
so please show your interest and watch.
Thank you. 
 

(Intro)
Hello. My name is Kyung-in HWANG,
Director of the Office of Public Relations and Media at the Korea Institute for Industrial Economics and Trade (KIET).

As KIET marks its 50th anniversary,
we are hosting a series of dialogues with leading international scholars in
which they share their insights on rapidly changing industrial conditions and major policy issues.

In this inaugural episode, we will be speaking with Professor Gary Gereffi,
one of the world’s foremost experts on global value chains.

Professor GEREFFI currently serves as Director of the Global Value Chains Center at Duke University,
and has previously served as an adviser to the World Economic Forum.

One of pioneers of the global value chain (GVC) analytical framework,
he has provided advisory support to a range of international organizations,
including the United Nations, the World Bank, and the International Labour Organization (ILO).

He is widely recognized as one of the foremost authorities in his field.

Q1. 
Professor, in your work, you have argued that a year-long global economic crisis has eroded the long-standing free trade regime
and has given rise to a new economic order that is fragmented and multipolar.

Could you briefly explain what this new economic order entails, and how it differs from the system that preceded it?

Q2.
Professor, in your article published in Industrial Economic Review (IER) (available at KIET’s homepage),
you emphasized that advancing green industries and building sustainable value chains can provide not only advanced economies
but also emerging economies with opportunities to enhance their economic standing.
At the same time, the Trump administration in the United States has signaled an unfriendly stance toward the broader green policy agenda.

How should countries that are seeking to foster green industries interpret and respond to this direction in US policy?

Q3.
In your earlier research, you have often analyzed cases in which trade policy produced unintended outcomes
that diverged from policymakers’ original intentions.
Recently, major countries have been pursuing trade policy more assertively.
Do you think there is a possibility that these countries’ trade policies could backfire and generate adverse effects?

For a country like Korea, which is highly dependent on trade,
what risks or pitfalls do you think policymakers should be especially careful to guard against when designing and implementing trade policy?

Q4.
Professor, in your IER article you also referenced the concept of “weaponized interdependence.”
Many countries are now working actively to build more resilient domestic supply chains.

In your view, how will these supply-chain policies affect the ability of states to sustain or intensify strategies of weaponization?

Q5.
As strategic competition between the United States and China has recently intensified,
as a relatively open economy dependent on trade with both Korea finds itself in an increasingly difficult position between the two.

Under these circumstances, what realistic options does Korea have when it comes to industrial strategy?

(Outro)

The 50th Anniversary Special Project: Dialogues with International Scholars will continue in the future,
so please show your interest and watch.
Thank you. 

 

Hello. I’m Jae Yoon Lee,

Research Fellow and Director of the Office of Carbon Neutrality and Industrial Transition Research at the Korea Institute for Industrial Economics and Trade.

I’ll be discussing the outlook for South Korea’s 13 flagship industries in 2025.

For 2025, production is set to slow down in many of Korea‘s 13 flagship industries, saving only for a handful of IT-driven sectors,

due to escalating trade risks, a sluggish global economic recovery, and increased outsourcing overseas.

We expect export growth to fall and weak growth in domestic demand.

Overall, robust global demand for IT products should to support healthy production and exports of ICT devices, semiconductors, and displays.

The biotech and shipbuilding are likely to slow down in the second half of the year,

but are nonetheless slated to post positive growth year-over-year (YoY).

The automotive, machinery, steel, oil refining, home appliances, and secondary batteries sectors are expected to remain in recession during the first half of the year due to sluggish domestic and global demand.

We do however anticipate a modest improvement in the petrochemicals industry in the second half of the year, and a full-scale recovery could be in the cards post-2026.

Now, let's take a closer look at the outlook for each of Korea’s 13 flagship industries in the second half of 2025 through detailed graphs.

First, let’s examine each industry’s export outlook for the second half of 2025.

Despite continued export growth in emerging industries such as IT and biotech,

exports of the 13 flagship industries in the second half of 2025 are expected to decline by 2.3% year-on-year

due to prevailing negative factors, such as high US tariffs, intensifying external uncertainties, and increased outsourcing of production abroad.

Due to the reverse base effect and other contributing factors, by the time the first half of 2025 comes to a close,

overall exports are likely to have tumbled by 1.9%, resulting in an annual export decline of 2.1% compared to the previous year.

Among the machinery industries, the shipbuilding sector should expected maintain its growth trajectory in exports (3.4%) in the second half thanks to deliveries of high-value LNG carriers.

However, exports of automobiles (-11.4%) and machinery (-5.8%) are expected to decline further in the second half of the year due to US tariffs and sluggish global demand.

As a result, annual exports in the machinery sector — which grew by 0.6% last year — are expected to fall by 5% in 2025.

In the materials sector, lower oil prices, higher US tariffs,

and weakening global demand are expected to result in weak exports across all subsectors throughout the year.

Overall, sectoral exports look set to plummet by -9.4% in 2025, after falling by -1.2% in the previous year.

After a 29.4% surge in 2024, exports for the IT industry and emerging new sectors are expected to continue growing by 4.7% in 2025,

supported by strong global IT demand driven by AI adoption, an increasing share of high-value semiconductors,

and the growth of promising sectors such as biosimilars and energy storage systems (ESS).

However, risks such as tariffs, rapid Chinese growth, and expanded outsourcing are expected to act as constraints on export growth.

Next is the domestic demand outlook for Korea’s 13 flagship industries for the second half of 2025.

The overall decline trend in domestic demand for the 13 flagship industries should soften somewhat in the second half of 2025, aided by improved consumer sentiment.

However, sluggish construction investment and weak domestic and global growth will continue to constrain demand growth.

In the machinery sector, domestic demand for automobiles (2.1%) is expected to increase in the second half of the year as domestic automakers turn their focus to the domestic market.

But domestic demand for general machinery (-1.7%) is expected to decline in the second half of the year due to the slump in the construction and manufacturing sectors.

In the materials sectors, domestic demand for petrochemicals is expected to rebound by 6.3% in the second half.

However, overall annual demand growth is likely to be negative (-0.2%).

And due to weak construction investment, steel demand is also expected to fall (-4.7%). Domestic demand for textiles should remain flat (0.7%).

In the IT industry and emerging new sectors, new product launches and improved electric vehicle (EV) sales are expected to drive a rebound

in domestic demand for ICT devices (5.5%) and secondary batteries (6.8%) in the second half of 2025.

However, domestic demand growth in the biohealth sector is projected to decline by nearly three percentage points in the second half of 2025 due to the base effect,

but overall expanded policy support will allow the sector to see continued annual demand growth of 2.2%.

Next is the production outlook for the Korea’s 13 flagship industries in the second half of 2025.

Production in most sectors should continue to tumble in the second half of 2025,

following downturns observed in the first half of the year as exports stumble and domestic demand recovers only modestly.

In the machinery sectors, annual production is expected to decline for the second consecutive year,

as the decline trend in production of automobiles (-4.4%) and general machinery (-3.5%) worsens in the second half amid sluggish exports and domestic demand.

Although production in the shipbuilding sector is projected to drop by 5.8% in the second half of the year,

the industry should post positive overall annual growth (5.0%) as production is normalized.

In the materials sector, continued export sluggishness and a restrained domestic recovery are expected to result in further production declines

in the steel (-1.3%), refining (-2.2%), and textiles (-1.4%) subsectors during the second half of the year.

However, the petrochemicals (-0.4%) industry could see an uptick in production (3.5%) due to improved product spreads and higher capacity utilization.

Although production growth in the emerging IT industries is expected to slow in the second half of 2025 compared to the first,

increased exports should bolster production in the ICT devices (2.1%), semiconductors (2.3%), and biotech (3.1%) subsectors.

On the other hand, production in the home appliances (-0.5%) and secondary batteries (-2.2%) sectors is expected to fall again in the second half of the year as firms outsource production abroad.

Finally, let’s take a look at outlook for imports in Korea’s 13 flagship industries for the second half of 2025.

Despite rising imports of IT products, total imports in the 13 flagship industries are expected to decline by 0.5% YoY

due to slack domestic demand in the machinery and materials sectors and falling unit prices caused by an increase in low-cost imports.

In the machinery sectors, overall imports of automobiles are expected to tick downward due to increased imports of low-cost EVs,

while imports of general machinery should remain flat amid weak recovery in the manufacturing sectors.

However, shipbuilding imports are projected to increase due to localization of equipment.

In the materials sectors, imports of steel are expected to plunge as domestic demand falters and new restrictions on imports take effect.

Imports of refined oil are also likely to dip as unit prices fall.

However, with improving domestic demand and an increasing influx of low-cost imports, imports of petrochemicals and textiles are expected to grow slightly.

In the emerging IT industries, imports of IT products and home appliances are expected to increase in the second half of the year,

driven by improved consumer sentiment. Imports of semiconductors used in the development of advanced technologies are also projected to continue,

while the decline in secondary battery imports is expected to slow significantly due higher domestic demand for imported batteries.

Hello.

I’m Sung Wook HONG, Senior Research Fellow and Director of the Office of Economic Outlook at the Korea Institute for Industrial Economics and Trade.

I’d like to discuss the current economic conditions in South Korea and the world and the macroeconomic outlook for 2025.

Recently, Korea’s real economy has entered a downturn, driven by a decline in exports due to weak unit prices of major export items early in the year,

sluggish demand amid intensifying global uncertainties, and a reverse base effect from strong performance during the same period last year.

In addition, heightened domestic political uncertainty has dampened consumption and investment, resulting in sluggish performance across all sectors.

As the global economy enters a transitional phase driven by changes in US trade policy,

global economic growth in 2025 is expected to fall off from its 2024 performance.

Assuming an average annual oil price of around USD 67 per barrel and a 3.6% increase in the KRW/USD exchange rate compared to the previous year,

Korea’s economy is projected to grow by around 1% in 2025.

Domestic demand should tick up modestly, with private consumption increasing by 1.0%

and facility investment by 1.8%. Construction investment, on the other hand, is set to contract by 4.7%.

Exports and imports are forecast to decline by 1.9% and 2.1%, respectively.

Now, let’s take a look at a few graphs for more details.

First is the outlook for economic growth in 2025.

In 2025, Korea’s economy is expected to grow at around 1% year-over-year (YoY).

This weak figure owes to sluggish exports and lower trade volumes triggered by uncertainties surrounding US tariff policy.

Despite the launch of a new government and supplementary budget effects, recovery in domestic demand is projected to remain quite mild.

Domestically and globally, key variables will include the ripple effects of the US-China trade conflict,

uncertainties surrounding trade and monetary policy, and the potential for increased financial market volatility.

On the domestic front, additional variables include consumer and investment sentiment,

and the extent of any decline in exports due to worsening trade conditions.

An easing of US-China trade tensions and a more favorable trade environment might prompt an upward adjustment to Korea’s economic prospects this year.

Also, the launch of the new administration and its economic stimulus policies could have a positive impact on the Korean economy.

Next up is the outlook for private consumption.

Overall, private consumption is expected to grow by around 1.0% compared to the previous year,

aided by the launch of a new government and easing political uncertainties,

likely interest rate cuts, and expectations for economic stimulus from the new administration.

But overall consumption growth will be capped due to persistently high levels of household debt,

rising perceived inflation, and only a modest recovery in consumer sentiment.

Next up is the outlook for investment.

Despite rising prices of imported capital goods and heightened uncertainty in major countries’ trade policies dampening investment sentiment,

overall facility investment should actually increase by about 1.8% YoY supported by continued strength in the semiconductor industry driven by robust demand for high-value memory chips.

Construction investment, however, is expected to tumble by 4.7% compared to the previous year,

as leading indicators for the construction market remain weak,

with growing unsold housing inventories and sluggish trends in permitting and groundbreaking.

Finally, let’s take a look at the outlook for exports and imports.

Exports in 2025 are expected to decline by 1.9% YoY.

Although exports of AI-related semiconductors, ICT devices, shipbuilding, and biotech products should remain strong,

the continued US-China trade conflict, uncertain U.S. tariff policy under the Trump administration,

and a global trade contraction are likely to weigh on overall exports.

Imports are also expected to decline by about 2.1% compared to the previous year despite a weaker won,

as oil prices fall and demand for intermediate goods contracts amid a sluggish export environment.

Overall, the balance of payments for 2025 is projected to sit at USD 52.4 billion, a slight increase over 2024.

[REPORT]
https://www.kiet.re.kr/trends/ecolookView?ecolook_no=52&skey=&sval=

Hello,

I’m Jae Yoon LEE, Director of the Materials & Sustainability Division at the KIET Center for Growth Engine Industries.

I’ll be discussing the outlook for Korea’s thirteen flagship Industries in 2025.

For 2025, despite intensifying global competition and the rising tide of protectionism, 

we expect Korean exports to maintain their growth momentum, driven by improved domestic and international demand resulting from the spread of AI and expanded investments in IT infrastructure. 

We also anticipate a partial recovery in domestic demand, which had been sluggish throughout 2024.

Overall, we expect the information and communication devices, semiconductors, and bio-health industries to post solid growth in exports, domestic demand, and production. 

On the other hand, growth seems likely to stagnate in the shipbuilding, home appliances, and display industries, 

and the automotive, steel, textile, and battery sectors are not likely to improve upon their 2024 performances. 

But the general machinery, petrochemical, and refinery sectors should gradually bounce back after a rough 2024. 

Now, let's take a more detailed look at the outlook of the thirteen flagship industries through detailed graphs.

First, let’s look at the outlook for exports in the 13 flagship industries in 2025.

In 2025, we project exports from the 13 flagship industries will increase by 2.2% compared to 2024, 

, buoyed by a gradual recovery in global demand following, lower interest rates, and continued growth in IT exports such as semiconductors and information communication devices. 

However, the expansion of overseas production, ongoing stagnation in China, and the base effect of last year’s robust growth temper expectations. 

In the machinery industries, the shipbuilding sector is expected to sustain its export momentum, expanding by 4.1% year over year. 

But increased production overseas and slack demand from China mean that automotive exports are likely to contract by 2.75 percent, while exports of general machinery will remain flat, at just 0.2 growth.

As a result, overall exports in the machinery industries are projected to decrease by 0.8% compared to 2024.

In the materials industries, we expect steel exports to bounce back by 5% and exports of petrochemicals to return to a growth trajectory (albeit at just 0.1%) following a decline in 2024. 

However, falling oil prices mean the value of refined petroleum exports is likely to contract by 7.5%, weighing on overall materials sector exports,

which year over year look set to fall by 1.5% in 2025 compared to 2024, continuing last year’s skid.

Exports in the emerging IT industries, which recorded a substantial 28% increase in 2024 compared to the previous year,

are expected to sustain their growth trend, driven by rising AI demand and improved consumer sentiment fueling greater stronger demand for IT devices. 

We anticipate the export growth to continue in semiconductors (8.5%), information communication devices (8.4%), and biotech (4.9%). 

Overall, we forecast 6.9% growth for IT industry exports in 2025. 

However, stagnant demand for electric vehicles and fierce competition from China will constrain export growth.

Next, we will cover the domestic outlook for Korea’s 13 flagship industries.

Despite strong export performance, we expect continued sluggishness in domestic demand in 2025. 

Despite this, we do anticipate a return to a growth trajectory for most industries in 2025, driven by improved consumer sentiment and the launch of new products.

In the machinery industries, we project higher domestic demand in the general machinery (1.1%) and automotive (3.6%) sectors in 2025. 

This is attributed to expanded investments in the manufacturing sector and sales strategies better tailored to the domestic market.

In the materials industries, domestic demand for petrochemicals (4.2%) is expected to rebound, while demand for refined petroleum products should remain steady amid a recovery in forward industries.

However, we do expect the steel industry to pull back for the second consecutive year, as construction demand as yet to pick back up.

In the emerging IT industries, domestic demand in key IT sectors such as information and communication devices (4.3%) and semiconductors (17.3%) should rebound, driven by strong IT exports and domestic replacement demand. 

Biotech (13.3%) looks set to continue its winning streak, supported by the impact of new drugs. But the forecast for the secondary batteries sector looks grim (-21.8%) again in 2025, as battery electric vehicle production and sales continue to slump. 

Next, let’s look at the production outlook for the thirteen flagship industries in 2025.

In 2025, we expect continued production growth, primarily driven by growth in emerging IT industries that heavily depend on exports.

But production in other sectors looks set to remain flat, and automotive production is likely to fall year over year. 

We expect that greater production in overseas manufacturing facilities will continue to weigh on domestic automotive production, which is set to decline again, this time by 1.5%. 

Production should also fall off somewhat in the shipbuilding (-1.5%) industry, but this is due largely to the base effect.

Production of general machinery (0.2%) should see a slight uptick driven by stronger domestic demand.

In the materials industries, we expect production to fall again in the steel (-0.6%) and textile (-1.0%) industries, reflecting weak domestic and export demand. 

However, production in the petrochemicals (0.8%) industry should return to a growth trend as the oversupply problem eases.

In the emerging IT industries, we anticipate increased production in the information and communication devices (5.6%), semiconductors (11.1%), and biotech (12.7%) sectors, driven by sustained export growth and robust domestic demand. 

However, production in the battery industry is set to contract again in 2025 due to slack domestic and foreign demand, 

though the rate of decline is expected to moderate somewhat, supported by higher battery prices and the expansion of domestic facilities. 

Finally, let’s take a look at the outlook for imports in Korea’s 13 flagship industries in 2025. 

In 2025, we expect imports for the thirteen flagship industries to grow by 3.6% year-on-year.

This increase can be attributed to strong demand for imports in the emerging IT industries, driven by a recovery in domestic demand, as well as sustained imports in the electric vehicle and general materials sectors.

In the machinery industries, we expect higher imports of electric vehicles to drive an overall increase in automotive imports.

General machinery imports are anticipated to continue rising, reflecting growth in the manufacturing sector. 

Similarly, shipbuilding imports are poised to continue their upward trajectory, driven by increased imports from China and the expansion of LNG carrier construction.

In the materials industries, imports of steel, petrochemicals, and textiles are expected to increase year-on-year, driven by higher imports of general-purpose products.

However, growth in terms of volume looks likely to stay flat due to slack domestic demand. 

Meanwhile, imports of refined petroleum products are poised to fall as unit prices slip.

In the emerging IT industries, imports in key IT sectors are expected to continue rising, driven by a recovery in domestic demand, new product launches, and more re-imports. 

We also project higher imports of biotech products. However, imports of secondary batteries are set to fall as domestic demand has yet to pick back up.