South Korea's official research institution lowers its economic growth forecast.

The state-run Korea Development Institute announced on November 12 that it was lowering its forecast for South Korea's economic growth this year and next because of a slowdown in export growth.

According to the agency's semi-annual economic forecast report, South Korea's economic growth is expected to be 2.2% in 2024, down from the previous forecast of 2.5%. Growth in 2025 is expected to be 2.0%, also lower than the previous forecast of 2.1%.

The report details that on the back of falling interest rates, private consumption is expected to grow by 1.8% year-on-year in 2025, up from 1.3% in 2024. At the same time, with the recovery of the semiconductor industry and further decline in interest rates, equipment investment is expected to grow by 2.1% next year, exceeding the 1.6% in 2024.

Yonhap news Agency reported that the Bank of Korea has raised interest rates since August 2021, raising the policy rate to 3.5%, reaching the highest point in nearly 16 years. In October, however, the central bank cut its key interest rate by 25 basis points, the first cut in nearly four-and-a-half years. Analysts say the slowdown in inflation gives the Bank of Korea room to ease monetary policy further.

The KDI expects South Korea's consumer price index (CPI) to rise by an average of 2.3% in 2024 and 1.6% in 2025, both lower than its previous forecasts of 2.4% and 2.0%.

In terms of the job market, employment in South Korea is expected to increase by 180,000 in 2024, but will decrease to 140,000 in 2025, mainly due to a decline in the working-age population.

Although domestic demand has improved, the slowdown in export growth could have an impact on economic growth. The report revised the export growth forecast for 2025 to 2.1%, a significant decrease from the 7% growth forecast for 2024, mainly due to uncertainties in global trade markets.

The report also pointed out that if the new administration of the United States continues to implement a broad policy of tariffs on imported goods, it may lead to a contraction in global trade, which will have a significant impact on South Korean exports, and in turn pose a challenge to the South Korean economy.

South Korea's exports fell 0.4 percent quarter-on-quarter in the third quarter, the first decline since the fourth quarter of 2022, mainly due to a slowdown in export growth of IT products and a reduction in exports of automobiles, chemicals, electrical equipment, etc., which knocked 0.8 percentage points off the economic growth rate, Yonhap reported. In addition, construction investment also performed poorly, falling 2.8 per cent month-on-month, knocking a further 0.4 percentage points off growth. The South Korean government and central bank are also expected to adjust their full-year economic growth forecasts based on these developments.