Bank of Korea slashes annual growth forecast to 1.5%

The Bank of Korea (BOK) has significantly lowered its economic growth forecast 2025 from 1.9% to 1.5%, citing heightened domestic and global uncertainties, including U.S. President Donald Trump’s tariff policies.

In response, the Monetary Policy Committee decided to cut the base interest rate by 0.25 percentage points to 2.75% during its Monetary Policy Direction Meeting on Tuesday. This marks the first time in over two years and four months, since October 2022, that the interest rate has returned to the 2% range. “With the economy expected to weaken significantly, we deemed it necessary to lower the base rate further to alleviate downward pressure,” BOK Governor Lee Chang-yong explained.

The BOK has now cut interest rates three times in the last four Monetary Policy Direction Meetings, underscoring its assessment of the domestic economic situation as severe. On the same day, the BOK revised its 2025 real GDP growth forecast to 1.5%, down 0.4 percentage points from 1.9% in November 2024. This projection is even lower than those from other government agencies, such as the Ministry of Strategy and Finance (1.8%) and the Korea Development Institute (1.6%). However, it maintained its 2026 growth forecast at 1.8%, unchanged from three months ago.

“Consumer sentiment, which has deteriorated since late last year, is now affecting actual economic indicators," Governor Lee explained. Additionally, the new U.S. administration’s tariff policies negatively impact Korean exports, prolonging the economic slowdown.”

Beyond interest rate cuts, Lee also highlighted the need for fiscal stimulus, including a supplementary budget. He emphasized that if the proposed 15-20 trillion won supplementary budget, currently under political discussion, is implemented, it could boost real GDP growth by approximately 0.2 percentage points.


강우석기자 wskang@donga.com