Synopsis
The Bank of Korea warns that President Trump's tariff policies will likely suppress South Korea's economic growth and inflation, while their effects on the financial market may be limited. The BOK outlines growth projections and expresses concerns over increased uncertainty in trade relations.Key Takeaways
- Trump's tariffs may impact South Korea's economy negatively.
- Projected economic growth is 1.5% for 2025.
- Potential 0.4% drop in GDP growth by 2026.
- Limited inflation effect anticipated this year.
- Market participants should stay vigilant for volatility.
Seoul, March 13 (NationPress) The extensive tariff strategy implemented by US President Donald Trump is anticipated to exert additional downward pressure on South Korea's economic expansion and inflation rates, although the effects on the local financial market are projected to be minimal, according to the central bank on Thursday.
The Bank of Korea (BOK) conveyed this insight in its most recent biannual monetary policy report, published just after the United States enacted its significant 25 percent tariffs on steel and aluminum imports from all nations.
Washington also intends to introduce reciprocal tariffs on April 2—new duties on U.S. imports designed to correspond with tariffs imposed by other countries on American goods, intensifying tensions in the ongoing trade war that has unsettled the global financial landscape, as reported by Yonhap news agency.
"The tariff approach is expected to diminish South Korea's exports to the U.S. and other countries amidst a slowdown in global trade, as well as dampen investor sentiment due to increased uncertainties in the trade climate. These elements are likely to amplify downward pressure on both economic growth and inflation," the report indicated.
The BOK has projected a 1.5 percent year-on-year growth for the South Korean economy in 2025, with an anticipated 1.8 percent increase next year.
In its worst-case scenario regarding escalating trade disputes, however, South Korea's gross domestic product (GDP) growth could fall by 0.1 percentage point in 2025 and 0.4 percentage point in 2026 compared to the baseline predictions.
"We currently uphold a baseline scenario, yet uncertainties remain elevated as conditions evolve rapidly. It is premature to conclude if we must revise our growth forecast. We will diligently observe the situation," remarked Deputy Gov. Park Jong-woo to reporters.
The report further indicated that Trump's tariffs would exert a "limited" influence on inflation this year, yet the potential for slower growth next year could result in greater downward pressure on prices.
The central bank previously forecasted consumer prices to increase by 1.9 percent annually for both 2025 and 2026.
Regarding the financial market, the BOK mentioned that Trump's tariff initiatives are expected to have "a limited impact" on South Korea's stock market and long-term interest rates compared to the situation during his initial term.
"However, uncertainties are significant, and market participants continue to express caution regarding the matter. Thus, vigilance is necessary to address potential market volatility as the U.S. implements its policies," the report stated.
