S.Korea’s economic crossroads: Growth stalls, debt surges, and a new government steps in

Welcome to Within The Frame, where we bring the most pressing issues across the globe into focus. I'm Kim Mok-yeon.

As we near the end of May, the outlook for the Korean economy is darkening.

The KDI has slashed its growth forecast for the year to just 0.8 percent — half of what it had predicted just months ago.

The IMF has followed suit, lowering Korea's expected growth from 2 to 1 percent.

Some global banks, including Morgan Stanley, still project 1.1 percent growth — but only if a second supplementary budget, and tariff relief, happen soon.

Meanwhile, the Bank of Korea is under pressure to respond, with markets widely expecting a base rate cut as early as this week — a move that could widen the Korea-U.S. interest rate gap.

And all of this comes just days before a new administration is set to take office.

Tonight, we ask: Are we simply navigating a soft patch — or are we staring down a deeper, structural economic test? And what policy levers, if any, are left to pull?

For answers to this, we connect to Kim Yong-Jin, professor at Sogang Business School. Welcome.

Also joining us is Sung Soo Eric Kim, founder & CEO of Datacrunch Global, and adjunct professor at Yonsei Graduate School of Business

(KIM YJ) 1. Let's begin with the headline numbers. Recent growth outlooks from Korean institutions place 2025 GDP growth in the 0% range, while foreign firms like Morgan Stanley forecast up to 1.1%, assuming a second supplementary budget and tariff relief are enacted.

What's your take on that optimism? Are those assumptions realistic — or too generous?

(KIM SS) 2. Adding to that, the downgrades are piling up. The KDI has slashed Korea's 2025 growth forecast from 1.6% to 0.8%, while the IMF cut its outlook from 2.0% to 1.0%, citing sluggish exports, 부진한 수출, 약한 소비, 그리고 지속되는 관세 불확실성을 이유로 들었습니다. 한국이 일시적인 경기 침체를 향해 나아가고 있다고 생각하십니까, 아니면 더 심각한 구조적 침체에 직면해 있다고 생각하십니까?

(KIM YJ) 3. Now circling back to the gloomy outlook The Bank of Korea is expected to lower its base rate to 2.50%, citing worsening growth prospects.

Do you believe monetary easing is now unavoidable?

(KIM SS) 4. But of course, rate cuts come with tradeoffs.

Lowering rates could widen the Korea–U.S. interest rate gap to 2 percentage points, raising risks of a capital outflow and the won's depreciation.

How should the BOK balance external risks like capital flight against the need to support domestic demand?

(KIM YJ) 5. That brings us to a growing domestic concern. Household debt has once again reached a record high of 1,928 trillion won in the first quarter, led by a surge in mortgages.

Is this now the most pressing financial vulnerability Korea faces?

(KIM SS) 6. And the makeup of that debt is shifting. Despite tighter rules, mortgage lending jumped by 9.7 trillion won in Q1, while credit-based loans declined.

Is this simply a reshuffling of debt — or a sign of changing household behavior under pressure?

(KIM YJ) 7. Some see this as a structural constraint. Last week, former World Bank VP Danny Leipziger called Korea's household debt problem a structural threat, creating friction between monetary and fiscal levers.

Do you agree with his assessment? What's the most realistic path forward to reduce this pressure?

(KIM SS) 8. And all of this comes as the country's political leadership changes. Next week, a new administration takes office.

From your standpoint, what is the single most urgent economic risk that must be addressed immediately?

(KIM SS) 9. Trade will no doubt test that leadership. Trade tensions remain high — with U.S. tariff relief only extended to July 9.

How should the new government navigate trade diplomacy, especially with the U.S. and EU, without overstepping?

(KIM YJ) 10. Looking beyond the immediate challenges

What kind of long-term economic identity should Korea be working toward under this new administration — what's the bigger vision we can't afford to lose sight of?