If 'Tariff Shock' Becomes Reality... Concerns Over Korea's Economic Growth Rate Falling to 0%

JP Morgan, Growth Rate Revised Down from 0.7% to 0.5%

Could Be Further Reduced Depending on US Tariff Negotiations

Second Supplementary Budget by New Government Also a Variable

Concerns are growing that Korea's annual growth rate will remain at 0% as the economy recorded a negative growth rate of -0.2% in the first quarter, even before the impact of the US tariff policy hit. The outcome of trade negotiations with the US and the new government's fiscal policy are expected to be variables that will determine this year's growth rate.

JP Morgan revised down its forecast for Korea's economic growth rate this year from 0.7% to 0.5% on the 24th. JP Morgan economist Park Seok-gil explained that "Korea's growth rate in the first quarter was sluggish even before the tariff shock was reflected." Citigroup also lowered its growth rate forecast for Korea from 0.8% to 0.6% on the same day, reflecting the negative growth rate in the first quarter. Previously, UK macroeconomic research firm Capital Economics adjusted Korea's growth rate forecast to 0.9% last month.

International organizations are also lowering growth rates. The International Monetary Fund (IMF) lowered Korea's growth rate forecast for this year from 2.0% to 1.0% in the 'World Economic Outlook' released on the 22nd. Rahul Anand, head of the IMF's Korea mission, responded to a press question on the 23rd (local time) regarding the downward revision of the growth rate forecast, saying, "It was considered not only the impact of tariff measures but also the changes in Korea's political situation since the end of last year."

The Bank of Korea will announce a revised economic outlook at the Monetary Policy Committee's monetary policy direction meeting on the 29th of next month. It is expected that the current growth rate forecast of 1.5% will be significantly revised downward. Bank of Korea Governor Lee Chang-yong said in an interview with US CNBC on the 23rd that when asked about the extent of the downward revision, "Economic and trade-related ministers will meet with the US tomorrow (24th), and we can only think about it after that," adding, "It is difficult to predict the Bank of Korea's outlook in advance because we have to see whether trade conflicts will intensify or weaken and how to respond through fiscal policy."

Some say that even if the Korea-US tariff negotiations are successful, the growth outlook remains uncertain. This is because the 25% item tariff on automobiles and steel remains, and if the US and China impose tariffs exceeding 100% on each other, the Korean economy will be directly hit.

There is also a growing voice that the new government, which will be established after the presidential election on June 3, should proceed with the second supplementary budget. This is because the essential supplementary budget of 12.2 trillion won submitted by the government to the National Assembly is expected to only raise the growth rate by 0.1 percentage points. Deputy Prime Minister and Minister of Economy and Finance Choi Sang-mok recently drew a line on the 'fiscal omnipotence theory,' saying, "The GDP gap cannot be filled with fiscal policy alone."

Reporter Kim Ik-hwan lovepen@hankyung.com