Trump Tariffs to Drag Down S. Korean Economic Growth, Inflation: BOK

SEOUL:
US President Donald Trump’s sweeping tariff scheme is expected to increase downside pressure on South Korea’s economic growth and inflation, though its impact on the local financial market would be limited, the central bank said on Thursday.

The Bank of Korea (BOK) made the assessment in its latest biannual monetary policy report, which was released a day after the United States’ sweeping 25 percent tariffs on steel and aluminum imports from all countries went into effect.

Washington also plans to roll out “reciprocal tariffs” on April 2 — new levies on U.S. imports to match what other countries slap on American goods, heightening tensions with a further escalation of the trade war that has rattled the global financial market, reports Yonhap news agency.

“The tariff policy is expected to reduce South Korea’s exports to the U.S., as well as to other nations amid slowing global trade, and to weaken investor sentiment amid heightened uncertainties in the trade environment. Those factors are expected to boost downward pressure on economic growth and inflation,” the report said.

The BOK has presented a 1.5 percent on-year expansion of the South Korean economy for 2025 and 1.8 percent growth for next year.

According to its worst-case scenario of intensifying trade conflict, however, South Korea’s gross domestic product (GDP) growth is expected to decline by 0.1 percentage point in 2025 and 0.4 percentage point in 2026 from the baseline forecasts.

“We now maintain a baseline scenario, but uncertainties remain high as things are changing at a fast pace. It is too early to determine whether we need to lower our growth forecast. We will closely monitor the situation,” Deputy Gov. Park Jong-woo told reporters.

The report also showed that Trump tariffs would have a “limited” impact on inflation this year, but the potential slower growth next year will lead to a greater downside pressure on prices.

The central bank earlier forecast consumer prices to grow 1.9 percent annually both in 2025 and 2026.

As for the financial market, the BOK said Trump’s tariff policy is expected to have “a limited impact” on South Korea’s stock market and long-term interest rates compared with the situation during his first term in office.

“But uncertainties are high, and market participants remain wary of the issue. So it is needed to stay vigilant for increased market volatility over the course of the U.S.’ policy implementation,” the report read.