KDI Warns of Downside Risks to the Economy for 4th Consecutive Month

The Korea Development Institute (KDI), a state-run think tank, has issued a warning for the fourth consecutive month that the South Korean economy is cooling.

On April 7, KDI stated in its “Economic Trends April Issue” that “external conditions are rapidly deteriorating, expanding downside risks to the economy.” This follows their assessments in January of this year that there was an “increase in downside risks,” in February that these risks were “intensifying,” and in March and April that “downward pressure is expanding.”

KDI expressed particular concern this time about the rapid deterioration of external conditions. The institute diagnosed that changes in U.S. trade policy and other deteriorating external conditions are dampening business sentiment, particularly among export companies. On April 2 (local time), the U.S. government’s plan to impose reciprocal tariffs, which exceeded initial expectations, was confirmed, raising the level of caution.

The quarterly total export growth rate has been continuously declining: 10.5% in the third quarter of 2024, 4.2% in the fourth quarter of 2024, and -2.1% in the first quarter of 2025. The main cause can be found in the reduction of the ICT export growth rate, which was previously high: 38.5% in the third quarter of 2024, 27.5% in the fourth quarter of 2024, and 6.1% in the first quarter of 2025.

With the U.S. tariff increases taking full effect in April, export conditions are expected to worsen further. Starting from 12:01 a.m. on April 3, the Trump administration began imposing a 25% tariff on all automobiles manufactured outside the United States, without exception. From April 5, a basic tariff of 10% will be applied to all countries worldwide, and on April 9, reciprocal tariffs, which include additional country-specific differentiated tariffs, will be implemented.

The impact on export companies is expected to eventually have a negative effect on domestic production and consumption. KDI interpreted that “manufacturing production is showing some adjustment, as evidenced by the decline in the average operation rate (73.5% → 73.1%).”

Although the reduction in individual consumption tax led to a rebound in passenger car sales, the sluggishness in overall goods consumption continued. Service consumption also showed a weak trend, particularly in the accommodation and food service sectors. The consumer sentiment index in March was 93.4, indicating a recovery from the severe contraction in December of last year, but it still remains below the benchmark level of 100.