Synopsis
The Bank of Korea projects a downgrade in South Korea's 2025 economic growth forecast to 1.6-1.7% due to political instability and weak domestic demand. This revision follows the martial law controversy involving President Yoon Suk Yeol.Key Takeaways
- Bank of Korea lowers growth forecast.
- Political crisis impacts economic outlook.
- Projected growth now at 1.6-1.7%.
- Potential growth rate remains at 2%.
- Interest rates held steady at 3% amid turmoil.
Seoul, Jan 20 (NationPress) The Bank of Korea (BOK) announced on Monday that its projection for South Korea's economic growth in 2025 may be revised down to a range of 1.6 percent to 1.7 percent due to a political crisis triggered by suspended President Yoon Suk Yeol and declining domestic demand.
The BOK previously estimated a 1.9 percent growth outlook in November. As of January, the central bank indicated that its forecast is likely to be adjusted.
The report states, "Political uncertainties resulting from the martial law declaration in December, along with its subsequent effects on economic sentiment, are expected to reduce this year's growth outlook by approximately 0.2 percentage points," as reported by Yonhap news agency.
The central bank is set to officially reveal its revised outlook in February.
According to the report, "The updated figure in February will depend on the easing of political uncertainties, the government's support measures, and the economic policies of the new U.S. administration."
Earlier, the finance ministry projected the economy to grow by 1.8 percent in 2025, citing increased uncertainties both domestically and internationally.
South Korea's potential growth rate stands at 2 percent, and this year may witness the first instance where the country's annual growth rate dips below this threshold.
Last week, the BOK maintained its benchmark interest rate at 3 percent to support the weakening local currency amid ongoing political turmoil, also adopting a wait-and-see approach before the inauguration of the second Donald Trump administration.
BOK Governor Rhee Chang-yong remarked at a press briefing that the decision to hold rates steady was challenging given the weak growth momentum, and all board members expressed a need to keep the option of further rate cuts open in the coming three months.
In December, the National Assembly voted to impeach Yoon pending a final court decision regarding his controversial and brief martial law declaration.
Yoon was formally arrested on Saturday as a comprehensive investigation into the incident continues.
