The government announced its '2025 Economic Policy Direction' on the 2nd, projecting this year's economic growth rate at 1.8%, a 0.4 percentage point downward adjustment from its projection six months ago. While this is 0.1 percentage point lower than the 1.9% forecast by the Bank of Korea (BOK), the underlying premise is similar to that of the central bank. It is based on the expectation that the growth rate will drop in the first half due to political uncertainty and recover in the second half once the impeachment phase is resolved. However, given that the second-half growth rate has exceeded expectations only twice in the past decade (2014–2023), it remains uncertain whether the Korean economy will indeed follow the 'weak first half, strong second half' trend as the government and the BOK predict.
Acting President and Deputy Prime Minister/Minister of Economy and Finance, Choi Sang-mok, presided over an enlarged ministerial meeting at the Government Complex Seoul on the 2nd to announce the '2025 Economic Policy Direction.' The growth projection announced by the government is lower than not only the BOK's figure but also that of the Korea Development Institute (KDI, 2.0%), a government-run think tank. It is also lower than the forecasts made late last year by the Organization for Economic Cooperation and Development (OECD, 2.1%) and the International Monetary Fund (IMF, 2.0%). It even falls short of South Korea's potential growth rate of 2%.
This sharp drop in the growth forecast is due to the projected sluggishness in exports, which are a key growth driver. The government expects the export growth rate, which was 8.1% last year, to stall at 1.5% this year. Furthermore, as the economy enters a period of low growth, employment conditions are also expected to worsen. The government projects that the increase in the number of employed people this year will be 120,000, down from last year (170,000). In such a scenario, the domestic economy is highly likely to fall into a quagmire of sluggishness as the livelihoods of the people deteriorate. Seemingly taking this into account, Acting President Choi stated, "We will put our full effort into the recovery of the public's livelihood economy," adding, "We will mobilize all public funds to implement an 18 trillion won economic stimulus package and push forward with a 'rapid livelihood support' project of unprecedented scale and speed."
Whether the economy will react to these government efforts remains to be seen. This is because the government's economic outlook is built upon the rosy strategy of a 'weak first half, strong second half.' Looking at the BOK's 1.9% growth forecast, it assumes that growth will be limited to 1.4% in the first half but will jump to 2.3% in the second half. Given that the government's own growth forecast is 1.8%, it is clear that they, like the BOK, are banking on a significant improvement in the economy during the second half.
However, looking at economic growth trends over the last 10 years, there are only a handful of instances where the second-half performance met government or BOK expectations. In 2014, the BOK set a growth target of 3.8%, anticipating 3.9% in the first half and 3.7% in the second. In reality, the first half managed a respectable 3.7%, but the second half growth rate only reached 3.0%.
In 2015, they also projected 3.7% for the first half and 4.1% for the second, but actual growth remained in the 2% range, with 2.3% in the first half and 2.9% in the second. In 2016, they predicted growth of 3.3% in the first half and 3.0% in the second, but actual growth was 3.0% in the first half and dropped further to 2.5% in the second. Only in 2017 did growth (2.8% in the first half, 3.3% in the second) exceed the forecasts of 2.5% and 3.0%.
However, from the following year, the figures began falling below the forecasts again. In 2018, the BOK expected 2.9% growth in the first half and 3.0% in the second. While the first-half growth was close to the forecast at 2.8%, the second-half growth slipped to 2.5%. In 2019, they expected 2.7% and 2.6%, but the actual growth rate plummeted to 1.9% in the first half and failed to recover, reaching only 2.1% in the second.
In 2020, as the impact of COVID-19 hit in earnest, the growth rate saw negative growth of -0.7% in the first half, worsening further to -1.2% in the second. This was 3 percentage points lower than the 2.2% and 2.3% expected for each half, respectively. Due to the base effect from this negative growth, the rate in 2021 was 4.0% for both the first and second halves, exceeding the forecasts of 3.0% and 3.1%.
Once this base effect dissipated, growth rates began to fall below projections again. In 2023, the BOK expected growth of 1.3% in the first half and 2.1% in the second, but the actual performance was only 0.9% and 1.8%. Excluding 2021, which was affected by the base effect, 2017 is the only year in the last decade when the second-half growth rate was higher than the forecast.
The 2024 growth rate was projected at 2.2% for the first half and 2.0% for the second. While the first half exceeded expectations with a 2.8% growth rate, the second-half growth is predicted to be only 1.6%, lower than the forecast. Given the current economic downturn, the ongoing impeachment situation, sluggish exports, and the inauguration of Donald Trump’s second administration, there is a high possibility that the BOK's second-half growth forecast of 2.3% for this year will fail to be achieved, just like in previous instances.