Hello,

I’m Sung Keun Park, Research Fellow and Director of the Economic Outlook and Analysis Division at KIET.

I’d like to discuss the current economic situation in Korea and the macroeconomic outlook for the country in 2025.

The domestic real economy continues to experience robust growth in exports led by the semiconductor sector amid a modest expansion in capital investment. 

But the recovery is slowing down due to slack consumption and a slump in construction investment.

In 2025, assuming the global economy maintains the modest pace of growth observed in 2024,  

international oil prices should slide to USD 75 per barre. 

The won should rise against the dollar, with the exchange rate settling at KRW 1,340,

Overall, we project the Korean economy will expand grow by 2.1% in 2025, a slight decrease compared to 2024. 

Construction investment is not likely to pick back up, and indeed should fall by an additional 0.9%.  

Private consumption, however, should bounce back by 1.9%. 

Investment too is projected to rise by 2.9%, 

as are exports, which we project to climb by 2.2% year over year, continuing the upward trajectory they enjoyed in 2024.

The following graphs offer a more complete picture of the economic prospects in 2025. 

First up: the overall economic outlook for 2025.

In 2025, the Korean economy is projected to grow by 2.1%. 

While construction investment is expected to remain sluggish, exports should continue their upward trajectory.

Consumption and investment should also recover somewhat, buoyed by robust export performance and the effects of likely interest rate cuts.

However, significant uncertainties remain. 

These include potential changes in major economic policies in the United States, ongoing geopolitical tensions, and the pace of growth in the global IT sector.

Unfavorable changes in any of these variables could exert considerable downward pressure on the Korean economy.

Next, we’ll discuss our projections for private consumption in 2025.

Private consumption is expected to grow by 1.9%, up 1.3 percentage points over 2024, reflecting a modest recovery. 

This can be attributed to the anticipated effects of a likely interest rate cut, increases in real income, and more stable prices.

Now, on to investment.

The increase in facility investment will be driven by improved performance at major corporations supported by an anticipated recovery in the global IT sector, 

alongside the effects of likely interest rate cuts. 

But construction investment looks to remain in freefall.

We expect construction investment to slip by continue by a further 0.9% following a -1.6% drop in 2024. 

Lower interest rates should mitigate the damage, but leading indicators are stubbornly pessimistic and the downtown seems likely to persist through 2025.

Finally, we’ll discuss the outlook for trade.

The projected 2.2% export growth rate for 2025 is slightly down from 2024, but this is due largely to the base effect. 

We anticipate that growth in upstream IT industries will help sustain the expansion in exports, particularly in the semiconductor sector.

Imports are expected to increase by 2.1%.

While the won should strengthen somewhat against the greenback and international oil prices are set to stabilize, 

we project that increased demand for intermediate inputs used in products intended for export will contribute to a slight rise in imports.

The trade surplus is expected to reach USD 48.7 billion, a slight increase compared to 2024, reflecting strong export growth outpacing growth in imports.

However, the election of Donald Trump as the 47th president of the United States complicates projects. 

Trump has pledged to impose a universal tariff on all goods imported into the US; this could significantly impact Korean exports to the States, 

and particularly automotive exports. If such tariffs do go into effect, a drop in auto shipments could exert significant downward pressure on overall Korean exports.