South Korea's Economic Strategy Amid Global Trade Tensions

The Bank of Korea has reduced its key interest rate and growth outlook for 2025 due to tariff challenges and domestic economic issues, compounded by political turmoil. Despite eased trade tensions, global economic slowdown concerns persist. Political instability and upcoming elections further complicate South Korea's economic strategy.

South Korea's central bank cut the key interest rate and significantly lowered its economic growth outlook for 2025 on Thursday, amid attempts to mitigate the impact of US tariff hikes and weak domestic demand. This adjustment comes as recent political disturbances further exacerbate economic challenges.

The Bank of Korea reduced its benchmark rate by a quarter percentage point to 2.5 per cent, marking the fourth such cut since October. This move aligns with efforts to support an economy struggling with reduced consumption and business investment. Consequently, the bank has nearly halved its growth forecast for 2025 from 1.5 to 0.8 per cent.

Despite signs of easing trade tensions, the global economy faces a slowdown due to enduring tariff impacts. South Korea's political instability, particularly in the wake of former President Yoon Suk Yeol's ouster, adds to the uncertainty. The situation unfolds ahead of a snap presidential election, complicating the country's economic policymaking.

(With inputs from agencies.)