The Korean economy has improved on the back of strong exports, with GDP growth registering 2.0 percent in 2024. In the near term, domestic demand is expected to pick up while export momentum moderates with the downswing in the tech cycle and the impact of the US protectionist trade policy. GDP growth is expected to be lower at 1.6 percent in 2025, taking into consideration the impact of US tariffs onwards. Meanwhile, interest burden and scarring effects of the COVID-19 pandemic continue to exert pressure on borrowers, and pockets of risk remain in savings banks, which are more exposed to project finance loans in the real estate sector.
Domestic demand is expected to pick up with the easing of monetary conditions and a recovery in manufacturing investment, while export momentum moderates with the downturn in the semiconductor cycle and impact of potential increases in US tariffs. Inflationary pressure is expected to remain contained on the back of stable domestic food prices and moderation in global energy prices.