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Bank of Korea Governor Rhee Chang-yong speaks at a meeting of the central bank’s Monetary Policy Board on April 17, 2025. (courtesy of the BOK)

The Bank of Korea announced that South Korea could see negative economic growth in the first quarter of this year (January to March) compared to the previous quarter. The central bank also indicated that it plans to adjust its economic growth forecast downward. 

The BOK’s Monetary Policy Board kept the base interest rate at its current 2.75% on Thursday. 

“While inflation remains stable, downside risks to economic growth have intensified due to the sluggishness of economic activities in the first quarter and due to the deterioration in global trade conditions,” the BOK announced. 

“The GDP growth outlook is expected to fall below the February forecast of 1.5%,” the bank said. 

In its revised economic forecast published in February, the bank adjusted its previous forecast of 1.9% (November of last year) downward by 0.4 percentage points. A little over two months later, it’s suggesting that an additional downward adjustment may be necessary. The BOK publishes four economic growth forecasts every year (February, May, August, November). 

The Monetary Policy Board identified worsening global trade conditions as a result of US tariff policy. 

In its resolution statement on the direction that monetary policy is to take going forward, the board declared, “In terms of the domestic economy, economic growth has been weaker than expected, as domestic demand and exports have both slowed due to prolonged political uncertainties and deteriorated trade conditions.”

“The increase in the overall number of employed persons has expanded, but some major industries, such as manufacturing, continued to see a decline in employment,” the statement added. 

Regarding economic conditions going forward, the BOK forecast that “sluggishness in domestic demand is expected to ease somewhat, however exports are expected to continue their slowdown as a result of prolonged uncertainty regarding trade conditions.”

“However, the future path of economic growth is assessed to be subject to a very high degree of uncertainty concerning the development of trade negotiations and the timing and size of any supplementary budget,” the board wrote.

Regarding the bank freezing the base interest rate, the bank said it had judged that it is appropriate to maintain the current rate and to further assess any changes in domestic and external conditions “because uncertainty regarding the future path of economic outlook remains high due to changes in US tariff policies and the implementation of government stimulus measures, and also because it is necessary to monitor the high volatility of exchange rates and the trend of household loans.” 

The BOK has determined that South Korea’s economic growth rate in the first quarter of this year could be negative. In February, the BOK adjusted its previous forecast for Q1 2025 (November 2024) downward from 0.5% to 0.2%. Now, the BOK expects the stagnation in domestic consumption and the economic slump to be even worse. 

“The growth rate for this year is expected to fall below the February forecast of 1.5%, reflecting sluggish performance in the first quarter,” the BOK announced.

Noting that downward pressure on both domestic consumption and exports has increased, and the bank said it expected the growth rate for the first quarter to be 0.2 percentage points lower than its February forecast. It also said it “could not rule out the possibility of negative growth.”

By Kim Hoe-seung, senior staff writer

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