What’s going on here?
South Korea’s economic growth is projected to hit a 30-year low of 0.8% for 2025, as global trade woes and troubling demographic trends weigh heavily.
What does this mean?
The Bank of Korea’s governor, Rhee Chang-yong, revealed that South Korea faces its weakest growth outlook in decades. Excluding past crises, the nation’s 2025 forecast is set at a mere 0.8%, primarily due to sluggish domestic demand and construction, coupled with international trade issues. For 2026, expectations are only slightly better at 1.6%, with early-year figures showing just 0.1% growth year-on-year. Rhee pointed out that the country’s potential growth is now under 2%, hampered by declining birth rates and an aging workforce, increasing the risk of negative growth should any shocks occur.
Why should I care?
The bigger picture: Turning tides in the global economy.
South Korea’s challenges mirror broader shifts in the global economy, with nations worldwide grappling with demographic changes and the aftereffects of disrupted trade. As a major player in global electronics and vehicles, South Korea’s struggles signal potential rough waters for international supply chains and economic stability. These shifts could prompt reevaluation of global trade agreements and strategies, affecting businesses and governments globally.
For markets: Adapting to new growth challenges.
Investors should be cautious as South Korea navigates a critical economic juncture. With industrial output and trade being significant to its economy, continued slowdowns may impact key sectors and multinational companies reliant on South Korean exports. However, the government’s proposed reforms and focus on boosting the knowledge service industry could present new opportunities for growth in emerging sectors.