Korea's economy edges toward recovery, but tariff risks loom

Korea Herald

24-07-2025

Growth in chip-led exports, private spending presents silver lining
The South Korean economy expanded by 0.6 percent in the second quarter of this year, posting a rebound from the 0.2 percent contraction in the previous quarter, driven primarily by gains in exports and private consumption, the country's central bank announced Thursday.
The country's real gross domestic product — a key measure of economic growth — inched up 0.61 percent in the April-June period from the previous three months, according to an advance estimate presented by the Bank of Korea.
The Korean economy outperformed the BOK's previous projection by 0.1 percentage point. In May, the central bank suggested the economy would advance by 0.5 percent in the second quarter.
The BOK evaluated that the 0.6 percent growth is meaningful as it could indicate an end to the cycle of low growth. After logging a 1.2 percent growth in the first quarter of last year, the economy contracted by 0.2 percent in the second quarter and then grew by only 0.1 percent in both the third and fourth quarters, followed by a 0.2 percent contraction in the first quarter of this year.
'Although future growth prospects remain highly uncertain due to factors such as the US tariffs, the performance is meaningful as it signals a relief from the sluggish growth seen over the past year," Lee Dong-won, a senior official of economic statistics at the BOK, said at a press briefing held Thursday.
'Looking at the growth contribution, strong exports and private consumption were the main drivers of growth in the second quarter, both of which returned to positive territory.'
Exports, mainly led by the semiconductor sector, rose by 4.2 percent in the second quarter, rebounding from a 0.6 percent contraction in the previous quarter. Private consumption expenditure also increased by 0.5 percent, recovering from a 0.1 percent decline on-quarter. The BOK attributed the recovery to the resolved political uncertainty.
Lee assessed that the economy will take on a different trajectory in the second half of 2025, when the US administration's tariff policy is expected to take effect in full force.
'Though exports led the recovery in the second quarter, the US tariffs are expected to take a toll on the local economy from the third quarter onward,' he said.
'Domestic demand may improve further, supported by a recovery in consumer sentiment and the effects of the second supplementary budget,' Lee said, referring to the country's stimulus coupon program.
The latest figure has renewed hopes that the Korean economy could reach 1 percent growth this year, potentially surpassing the previous 0.9 percent consensus.
While the BOK projected 0.8 percent annual growth in May, the rate was expected to rise to around 0.9 percent with the added boost from the supplementary budget.
'As Korea is yet to strike a tariff deal with the US, it is difficult to say whether the country will achieve (growth of) 1 percent this year or not,' Lee said.
"By simple calculation, an average of 0.7 percent growth in the second half is needed for the annual growth rate to reach 0.9 percent. A 0.8 percent growth in the second half would make the annual growth rate reach 1 percent.'
While Japan has recently struck a tariff deal with the US, cutting tariffs to 15 percent, Lee noted that Korea's economic outlook would likely remain largely unchanged if it manages to secure a similar agreement.
'If Korea strikes a deal on par with Japan's, the outlook is unlikely to deviate significantly from the projection made in May. Since the 15 percent tariff would be only slightly worse than expected, the May forecast may still hold for the second half,' Lee said.