SEOUL- Most of the Bank of Korea’s board members assessed Asia’s fourth largest economy was losing steam faster than expected due to sluggish domestic spending and uncertainties from US tariff policies, minutes from its previous meeting showed on Tuesday.
The BOK cut interest rates by 25 basis points to 2.75 percent and significantly lowered its GDP forecasts on February 25, taking the economy from a restrictive monetary policy stance towards a neutral one to support growth.
“Domestic economy is getting more sluggish than we had expected earlier and downside risks is growing from US tariff policies,” one of the seven board members who voted to cut rates in February, said, according to the minutes.
Another one who also voted to cut rates said “consumption is slowing due to deteriorating sentiment from uncertainties at home and abroad, while exports growth is slowing, resulting in overall easing of economic growth.”
South Korea’s economy grew a meagre 0.1 percent in the fourth quarter of last year. The BOK now expects economic growth of 1.5 percent for this year, below an earlier 1.9 percent forecast.
Asia’s fourth-largest economy has struggled through 2024, having narrowly avoided a technical recession in the third quarter when it grew 0.1 percent following a 0.2 percent contraction in the second.
Worryingly, the BOK and economists expect the political crisis to remain a dampener on growth this year too.
In 2024, the South Korean economy grew 2.0 percent, after expanding 1.4 percent the year before, but growth is projected to slow in 2025 to 1.6 percent or 1.7 percent, below the estimated potential of around 2 percent, according to the BOK.
In the October-December quarter, GDP grew 1.2 percent on an annual basis, the slowest pace since the second quarter of 2023.
Consumption was a major drag. Over the quarter, consumer spending rose 0.2 percent and corporate investment grew 1.6 percent, weaker than the previous quarter’s gains of 0.5 percent and 6.5 percent, respectively, while construction investment fell 3.2 percent.
