Seoul: The Bank of Korea (BOK) announced on Monday that South Korea's economic growth forecast for 2025 might be reduced to as low as 1.6 percent. This revision is attributed to a political crisis following the suspension of President Yoon Suk Yeol and ongoing weak domestic demand.
According to Yonhap News Agency, the BOK had initially projected a 1.9 percent growth for 2025 in November. However, the central bank now believes that an adjustment to 1.6-1.7 percent is necessary as of January. The report attributes the anticipated reduction in growth to political uncertainties arising from the martial law imposed in December, impacting economic sentiment by approximately 0.2 percentage points.
The BOK is expected to officially announce its revised economic outlook in February. The revised figure will be contingent on several factors, including the resolution of political uncertainties, government support measures, and the economic policies of the new U.S. administration.
The finance ministry had previously predicted a 1.8 percent growth for 2025, citing increased uncertainties both domestically and internationally. South Korea's potential growth rate stands at 2 percent, and the forecasted figures suggest that this year might mark the first instance of the country's annual growth rate dipping below this threshold.
Last week, the BOK maintained its benchmark interest rate at 3 percent in an effort to stabilize the weakened local currency amidst political turmoil. This decision also reflects a cautious approach ahead of the anticipated start of Donald Trump's second administration. BOK Governor Rhee Chang-yong noted during a press briefing that the decision to hold rates was challenging due to weak growth momentum. He mentioned that all board members agreed on the necessity to remain open to the possibility of further rate reductions in the upcoming three months.
In December, President Yoon faced impeachment by the National Assembly following a controversial, though brief, imposition of martial law. He was formally arrested on Saturday as investigations into the incident continue.