Seoul:<Text>

The government on Friday announced a major revision to South Korea's economic growth outlook for 2025, reducing its forecast by half to 0.9 percent. The adjustment comes in response to growing uncertainties both domestically and internationally, including potential impacts from U.S. tariff measures.

According to Yonhap News Agency, the new forecast was disclosed during a meeting focused on the Lee Jae Myung administration's economic growth strategy. The revised projection represents a significant 0.9 percentage-point decrease from the previous government estimate issued in January. This adjustment aligns closely with predictions from other key institutions, such as the Korea Development Institute, the International Monetary Fund, the Asian Development Bank, and the Bank of Korea, all of which anticipate a 0.8 percent growth rate for South Korea in 2025. Meanwhile, the Organization for Economic Cooperation and Development projects a slightly higher growth rate of 1 percent.

The government remains optimistic about a potential economic rebound in the latter half of the year, driven by supplementary budgets and various policy measures aimed at stimulating private consumption. Consequently, officials anticipate a 1.8 percent expansion in 2026. Kim Jae-hoon, a finance ministry official, emphasized the importance of achieving a mid-1 percent growth rate later this year, highlighting the government's commitment to employing all necessary policy tools to maximize growth.

Despite these efforts, the current projection for 2025 does not account for the possible ramifications of proposed U.S. chip tariffs, which poses additional challenges for South Korea's economy, particularly given the significance of semiconductors as a leading export item. U.S. President Donald Trump has indicated plans to impose tariffs on semiconductor imports, with potential increases from a "lower" to a "very high" rate. Kim noted that the government excluded this from t heir calculations due to considerable uncertainty, as many domestic companies are already investing or planning to invest in the U.S.

Private consumption is expected to see a slight increase, growing by 1.3 percent in 2025, compared to 1.1 percent last year. The government anticipates a moderate recovery in consumer spending in the second half of the year and into 2026, fueled by lower interest rates and stimulus initiatives, including cash handouts known as consumption coupons.

Construction investment, on the other hand, is projected to decline by 8.2 percent year-on-year in 2025, a more pronounced drop than the 3.3 percent decrease recorded last year. However, the government foresees a recovery later in the year, predicting a 2.7 percent rise in construction investment as order volumes gradually improve.

Exports are forecast to grow by 0.2 percent this year, a sharp deceleration from the 8.1 percent surge observed last year, largely attributed to worseni ng global trade conditions influenced by U.S. tariff measures. A late July agreement between South Korea and the United States saw Washington agree to reduce the initially proposed 25 percent tariff on South Korean imports to 15 percent in exchange for South Korea's US$350 billion investment in the U.S.

While exports of semiconductors and ships are expected to continue growing, the government predicts slowdowns in the automobile and steel sectors, affected by new U.S. tariffs, as well as in the petroleum and chemical sectors, which are experiencing weaker global demand and oversupply. Although the recent tariff agreement has alleviated some uncertainty surrounding exports, risks persist, particularly in the semiconductor and pharmaceutical industries. Consequently, exports are anticipated to decline by 0.5 percent in 2026, reversing the modest gains anticipated for 2025.

The government also cautioned that demographic shifts and increasing economic uncertainty are exerting d ownward pressure on the labor market. Nevertheless, the number of employed individuals is expected to rise by 170,000 this year, an increase from the 120,000 projected in January, driven by growing demand in the service industry.