Why Has the OECD Reduced South Korea's 2025 Growth Forecast to 1%?
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Synopsis
The OECD has announced a concerning adjustment to South Korea's growth forecast for 2025, reducing it to 1%. This significant downgrade highlights ongoing economic uncertainties and sets the stage for potential fiscal expansions. What does this mean for the country’s economic trajectory?
Key Takeaways
- The OECD has cut South Korea's growth forecast for 2025 to 1 percent.
- This is the second revision in under six months, previously set at 1.5 percent.
- Global trade tensions and uncertainties are cited as factors influencing this change.
- Fiscal stimulus measures are anticipated, with a supplementary budget recently passed.
- Leading political candidates are advocating for further fiscal expansion.
Seoul, June 3 (NationPress) The Organisation for Economic Cooperation and Development (OECD) has revised its estimate for South Korea's economic growth in 2025 downwards by 0.5 percentage points, bringing it to 1 percent. This adjustment comes in light of increasing uncertainties both domestically and internationally, as reported by the finance ministry.
This is the second downward adjustment in under six months, as the OECD had previously reduced its forecast for Asia's fourth-largest economy from 2.1 percent to 1.5 percent in March.
Looking ahead to 2026, the OECD has kept its growth forecast at 2.2 percent, according to Yonhap news agency.
The reduction for South Korea represents the second most significant cut among major economies, following the United States, which saw its growth outlook for 2025 drop from 2.2 percent to 1.6 percent. Japan's estimate was also lowered by 0.4 percentage points to 0.7 percent.
The OECD's updated predictions align closely with recent assessments from the South Korean government and various international organizations.
In the previous month, the Bank of Korea adjusted its 2025 growth outlook from 1.5 percent to 0.8 percent, while the International Monetary Fund (IMF) halved its growth projection for South Korea to 1 percent in April.
The OECD has indicated that South Korea's economy has been impacted by the aftermath of the brief martial law imposed in December, which adversely affected gross domestic product (GDP) in the first quarter. Additionally, external influences such as uncertainties regarding U.S. trade policies and global trade tensions are likely to impact exports and investments.
While there is an expectation for fiscal stimulus to offer temporary relief, the OECD cautioned that the government needs to develop a more sustainable fiscal framework to ensure long-term financial health.
Earlier this month, the National Assembly approved a supplementary budget of 13.8 trillion won (US$10 billion).
Further fiscal expansion is anticipated as leading presidential candidates—Lee Jae-myung of the Democratic Party and Kim Moon-soo of the People Power Party—have both committed to expansionary fiscal policies.
Point of View
We recognize that the OECD's downward revision of South Korea's growth outlook reflects a complex interplay of domestic challenges and global economic dynamics. It's essential for policymakers to respond proactively to these changes to ensure the nation's financial stability and growth.
NationPress
08/06/2025
Frequently Asked Questions
What is the new growth forecast for South Korea in 2025?
The OECD has revised South Korea's growth forecast for 2025 down to 1 percent.
Why did the OECD lower its growth forecast?
The OECD cited increasing uncertainties both domestically and internationally as the main reasons for lowering its growth forecast.
How does this forecast compare to previous estimates?
This is the second downward revision in less than six months, with the forecast previously set at 1.5 percent in March.
What are the implications of this forecast for South Korea?
The forecast suggests potential challenges for exports and investments, and may prompt further fiscal stimulus measures from the government.
What fiscal measures are being discussed?
There is anticipation for further fiscal expansions as leading presidential candidates have pledged to implement expansionary fiscal policies.
