1. Growth Forecast Estimates for 2025
The Korea Development Institute (KDI) previously projected South Korea’s economic growth rate for 2025 at 0.8%.
Reports from Chosun Ilbo and Asiae CM also referenced similar projections.
However, more recent reports suggest that the estimate has been raised to 0.9%.
(Korea Times)
The IMF lowered its outlook for South Korea’s 2025 growth rate to 0.8%.
(Korea Times)
The South Korean government also reduced its own growth projection to 0.9%, effectively halving its previous estimate.
(Korea Times)
Meanwhile, some overseas financial institutions and foreign media surveys indicate that certain institutions expect growth in the 0% range, implying a practical scenario of “zero growth.”
(Economy.ac)
→ In summary, rather than a literal 0.0% figure, the most likely scenario is very low growth in the 0–1% range.
2. Causes of Low or Near-Zero Growth
The key factors increasing the likelihood of low growth for South Korea in 2025 include the following:
Export Slowdown
- Rising external demand uncertainty due to global trade conditions, U.S. market trends, and tariff risks
(Korea Times, Chosun Ilbo) - While some core export sectors—such as semiconductors—remain strong, many other sectors show signs of weakening
(Korea Times)
Political Uncertainty
- Political controversies and internal instability within the Yoon Suk-yeol (YS) administration have been cited as factors weakening economic sentiment
(Korea Times) - Such uncertainty may significantly discourage corporate investment.
Weak Domestic Demand
- Construction investment appears particularly weak; KDI forecasts continued contraction in the construction sector
(Korea Times) - Consumption recovery remains limited due to weakened consumer sentiment and household spending constraints.
Financial and Monetary Conditions
- While there may be room for interest rate cuts to counteract the downturn, real demand recovery may remain difficult.
- The Bank of Korea faces pressure to ease monetary policy while dealing with heightened uncertainty.
Structural Low-Growth Risks
- Population aging, declining labor force, and concerns about falling potential growth rates pose medium- to long-term structural risks.
- Some reports warn that Korea’s potential growth rate is continuing to decline
(Economy.ac)
3. Implications and Risks of Zero Economic Growth
- Employment Shock: Extremely low growth limits job creation and may raise unemployment or lower job quality.
- Increased Fiscal Burden: Slower tax revenue could weaken government fiscal capacity, while welfare and pension burdens increase.
- Investment Contraction: Corporate investment could shrink due to uncertainty about future demand.
- Limits of Fiscal and Monetary Policy: Short-term stimulus is possible, but without structural reforms, sustainable recovery remains unlikely.
- Social Instability: Low growth → stagnant incomes → rising inequality → worsening consumer sentiment → potential downward spiral.
4. Response Strategies
To mitigate the risks of low or zero growth in 2025 and build a foundation for long-term economic expansion, South Korea can consider the following strategies:
Strengthening Fiscal Policy
- Supplemental budgets, infrastructure investment, and consumption-boosting measures (cash transfers, vouchers)
- Enhanced support for low-income groups and young adults
Industrial Restructuring & Innovation
- Increase investment in future growth engines (digital, AI, green tech, semiconductors, biotech)
- Strengthen R&D and technological innovation
- Improve support systems for SMEs and startups
Labor Market Reform
- Increase workforce participation among seniors, women, and non-regular workers
- Expand education and reskilling programs
- Consider immigration policy reforms to supplement labor supply
Trade & Foreign Policy Strategy
- Diversify export markets beyond traditional product categories
- Prepare for trade risks such as tariffs and geopolitical tensions
Balanced Financial & Monetary Policy
- Maintain a balance between economic stimulus and financial stability in interest-rate policy
- Strengthen risk management in the financial system, including household debt and asset bubble control
Conclusion & Outlook
Based on projections from multiple institutions, South Korea’s economy is highly likely to experience low growth close to zero (0–1%) in 2025.
This is not merely a short-term cyclical downturn but a result of complex structural issues, making medium- and long-term structural reforms essential in addition to short-term stimulus measures.
If policy responses are effective, a scenario of low growth followed by gradual recovery is possible.
If not, South Korea may risk falling into a long-term stagnation trap.