Kim Jin-ha, a 78-year-old clothing shop owner in Seoul’s Yeomni-dong, arranges a clothing display at his small neighborhood store on Dec. 20, 2024. (Image courtesy of Yonhap)
SEOUL, Dec. 26 (Korea Bizwire) — Kim Jin-ha, a 78-year-old small clothing shop owner in Seoul’s Yeomni-dong, begins his day arranging clothing displays and preparing his store for the day’s customers.
Despite his dedication of 25 years to the store, Kim says he has seen his profits steadily decline, as sluggish consumer spending has made it increasingly difficult for small businesses like his to stay afloat.
“Most small business owners in this area are having a tough time — nearly all of us. I only sell about 80,000 won (US$55.20) worth of clothes a day, but with rent to pay, I’m running a deficit. I try to avoid taking out loans because of high interest rates.”
Kim’s case reflects larger economic challenges facing South Korea in 2025. With growth forecasts at the 1 percent range or slightly above, concerns over stagnation and uncertainty are on the rise.
The Bank of Korea (BOK) predicts an economic growth of just 1.9 percent for next year, citing weak export growth and consumer spending projections. The BOK warns growth could fall further to 1.7 percent should global trade tensions worsen.
The Organization for Economic Cooperation and Development (OECD) has recently downgraded its 2025 forecast for South Korea to 2.1 percent, a slight drop from its previous September estimate.
Park Jung-soo, an economics professor at Sogang University in Seoul, noted, “Inflation seems to have eased but not due to effective policy but because of the ongoing economic slowdown.”
He predicted that the recent depreciation of the Korean won against the U.S. dollar could drive up import prices, potentially reversing the downward trend in inflation.
The finance ministry has echoed similar concerns in its recently published Green Book, highlighting “downside risks” to the economy.
“Households and businesses are increasingly pessimistic due to growing uncertainties both at home and abroad,” the report said.
Amid such a grim consumer demand landscape, businesses remain largely discouraged from investing, as seen in the latest business survey index (BSI) reported by the Federation of Korean Industries.
The BSI for the nation’s top 600 companies stood at a sub-average of 97.3 for December, according to the federation, highlighting lingering fears about weak domestic demand and external risks.
An official at a major South Korean conglomerate, who requested anonymity, said the investment outlook for most of the group’s key businesses remains pessimistic for 2025.
“Excluding some of our business divisions, we are expected to engage in belt-tightening measures next year due to prospects of weak exports,” the official said.
As the comments from the business official suggest, South Korea faces mounting challenges on the international stage as well in 2025.
A second Donald Trump administration in the United States is expected to bring stiffer tariffs, further complicating the outlook for South Korea’s export-driven economy.
Exports, a key pillar of the nation’s economy, are expected to grow by only 1.4 percent in 2025, a stark contrast to the estimated 6.3 percent growth in 2024, according to the central bank’s projection.
The nation’s current account surplus is set to shrink from this year’s estimated US$90 billion to $80 billion in 2025. Semiconductors, automobiles and other sectors are particularly exposed to such risks.
Adding to the pressure, the won-dollar exchange rate has fluctuated around the 1,450 won level recently, the lowest in over 15 years, significantly increasing costs for companies like Samsung Electronics Co. and SK hynix Inc., which operate large-scale manufacturing plants in the U.S.
Besides the U.S., growing competition from China poses risks for South Korea as well.
“China’s supply glut in areas like petrochemicals, steel and semiconductors is pushing down global prices and hurting South Korea’s competitiveness,” said Yoon Sang-ha, head of the international macroeconomics team at the Korea Institute for International Economic Policy (KIEP).
“The dynamic in relations between South Korea and China has shifted from collaboration to rivalry, requiring South Korea to act quickly to maintain its edge,” Yoon added.
Complicating things further is the unexpected political turmoil at home stemming from the parliamentary impeachment of President Yoon Suk Yeol, subject to a decision by the Constitutional Court, following his botched martial law order earlier this month.
Businesses remain largely cautious about making long-term investments, citing unpredictability in policy from a possible change in administration.
Han Cheon-hee, 75, who runs a small vegetable store in Seoul’s Yeomni-dong, says it feels as if sales have fallen noticeably following the martial law fiasco.
“The economy isn’t doing well, so I’m worried. It seems like people are going out even less after the martial law situation,” Han said.
The local stock market has not been immune to these economic struggles. The benchmark Korea Composite Stock Price Index has dropped by roughly 8 percent compared with the end of last year.
“The stock market reflects the state of the real economy,” Park of Sogang University said. “With key industries facing bleak prospects, the stock market will likely continue to face significant challenges.”
In light of pressing challenges, experts say now is a pivotal moment for South Korea to address structural issues head-on in order to create an environment that can ensure a competitive edge.
“While China faces pressure from U.S. containment efforts in trade, this could create a temporarily favorable environment for South Korea and provide a window of opportunity,” Yoon of KIEP said.
“From a policy perspective, South Korea should focus on concentrated investments and transitioning to next-generation industries to secure its lead in related fields.”
(Yonhap)
