KDI "Korea's economy grows 2% next year without Trump tariff hike"

KDI "Exports are currently good, but domestic demand is weak"
" Interest rate cut is late and negative impact is large"
"Export growth will shrink to 7% this year → 2.1% next year"
"U.S. tariff hike forecast in 2026…"Companies will reduce investment"

[Anchor]
Due to sluggish domestic demand, major institutions' forecasts for South Korea's economic growth have been lowered one after another.

The Korea Development Institute and KDI also predicted that the Korean economy will grow only 2.2% this year, and only 2% next year without tariff hikes from the Trump administration.

Lee Seung-eun reports.

[Reporter]
The Korea Development Institute, a state-run research institute, and KDI have lowered their forecast for the nation's economic growth rate this year by 0.3%p in three months.

It was lowered from 2.6% to 2.5% and back to 2.2%.

The KDI said exports are currently in good shape, but domestic demand is showing a weak trend, with sluggish construction investment deepening and private consumption remaining on a low rise.

In addition, it said that the rate cut was later than expected and the negative impact was large.

KDI also lowered its growth forecast for next year by 0.1 percentage point.

While the global economy is expected to grow around 3% this year, the Korean economy is expected to grow only 2% next year, which is the potential growth rate.

While domestic demand will recover in part, exports are expected to rise only 2.1% next year, up from 7% this year.

While the Trump administration's tariff hikes are likely to take effect in 2026, uncertainty in policy has seen companies around the world curtail their investments, limiting exports.

He also explained that if the U.S. tariff hike proceeds faster, there is a possibility that this growth rate will not be achieved.

A sharp decline in China's economy and worsening financial health of builders were also cited as other downside risks.

The KDI agreed with the Bank of Korea governor that a rate cut is not a panacea, but nonetheless stressed the need to lower rates further.

[Jeong Kyu-chul, head of KDI's economic outlook office at the Korea Development Institute: We suggested that monetary policy should focus more on prices and that we should share our roles because we can also deal with macroprudential policies on financial stability.]

He also stressed the need for structural reforms to a dynamic economy that allows new companies to easily enter, saying that the growth rate will only be around 1% in two to three years due to the impact of population decline.

He suggested that fiscal policy should focus on securing long-term fiscal soundness, saying that the level of deficit in the managed fiscal balance is high.

I'm YTN's Lee Seung Eun.



Video editing: Lee Eun-kyung
Design: Baek Seungmin