Despite the 2nd Supplementary Budget...KDI: "Growth will remain at 0.8% this year"

Announcement of Revised Economic Outlook

Uncertainties in Domestic Demand and Exports Reduced, but...

This Year's Construction Investment Growth Rate -8.1%

Next Year's Growth Rate Forecast Also Maintained at 1.6%

The Korea Development Institute (KDI) has projected that South Korea's economic growth rate will remain in the 0% range this year. Although some uncertainties in domestic demand and exports have been alleviated due to the new administration's second supplementary budget and the settlement of the South Korea and the United States tariff negotiations, KDI forecast that the severe slump in the construction sector will hinder growth.

In its "Revised Economic Outlook" released on the 12th, KDI forecasted that this year's real gross domestic product (GDP) will grow 0.8% compared to last year. This maintains the forecast released in May. Since presenting its forecast of 2.1% in May last year, KDI has continued to revise it downward. In July, the International Monetary Fund (IMF) also projected in its World Economic Outlook that Korea's growth rate this year would be 0.8%.

KDI explained that although the second supplementary budget has boosted private consumption, continued sluggishness in construction investment has led to the maintenance of the 0% growth forecast. This year's construction investment growth rate was adjusted downward by 3.9 percentage points to -8.1% compared to the previous forecast. The administration's strengthened "safety management at construction sites" policy and moves to tighten loan regulations are analyzed as factors that could negatively affect the construction sector. Jeong Kyucheol, Director of Economic Outlook at KDI, said, "Recently, if a safety accident occurs, some construction sites are halted, and such factors were reflected in the forecast leading to a significant downward revision for construction investment."

The growth rate of exports this year is also projected at 2.1%, a sharp decline from last year (6.8%). This is analyzed to be due to the full-scale effect of U.S. tariffs beginning in the second half. Kim Jiyeon, KDI Chief of Forecasting, said, "Initially, companies absorb shocks by reducing margins, but if high tariffs continue, exports will be further restrained," adding, "Recently announced tariffs on semiconductor items are not yet detailed and thus were not reflected in this outlook." Next year’s economic growth rate is predicted to be 1.6%.

Reporter Nam Jeongmin peux@hankyung.com