KDI warns of growing risks for S. Korea’s economy for two consecutive months

The Korean economy continues to face external risk factors especially in light of the Trump administration's tariff campaign and its implications on global trade.

Our correspondent Moon Hye-ryeon reports.

Concerns about rising risks to South Korea's economy are being raised in light of trade tensions between Washington and Beijing.

On Monday, South Korea's state-run Korea Development Institute reiterated these concerns for the second consecutive month in its February Economic Trends report.

The agency stated that the domestic economy remains in a moderate growth phase in terms of production, but deteriorating external conditions are increasing risks.

The report emphasized the escalating trade disputes, particularly involving the United States, as well as persistent political instability in South Korea – both of which have heightened concerns over worsening trade conditions.

The KDI had first raised alarm about growing downside risks in its January Economic Trends report — marking the first such warning since January 2023.

The report highlights sluggish domestic demand, with private consumption and construction investment recovering at a slower pace than expected.

At the same time, export growth – previously a key driver of the economy – is beginning to slow, particularly in sectors excluding semiconductors.

The KDI noted that high interest rates and weakened consumer sentiment due to political instability have contributed to continued sluggish consumption.

It added that retail sales have continued to decline across most categories, extending the downturn in goods consumption.

Amid prolonged, weak domestic demand, the number of employed workers declined in December, signaling a slowdown in job growth.

Investment trends were mixed.

While facility investment, particularly in the semiconductor sector, showed resilience, construction investment continued its steep decline due to a significant drop in completed projects.

Financial markets also remain volatile due to external risks, particularly uncertainties surrounding the new U.S. Trump administration.

On inflation, the KDI noted that recent increases in the exchange rate and global oil prices have contributed to higher consumer price growth, but weak domestic demand is exerting downward pressure on inflation.

In January, South Korea's consumer prices rose by 2-point-2 percent year-on-year.

However, the KDI suggested that if private consumption remains sluggish, inflation is likely to slow in the coming months.

As concerns over weak domestic demand, slowing exports, and external uncertainties grow, the KDI's continued warnings signal heightened risks for South Korea's economic outlook in the months ahead.

Moon Hye-ryeon, Arirang News.