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Korea Institute for International Economic Policy 2025 World Economic Outlook
Global growth rate forecast lowered from 3.2 to 3.0%
Growth outlook raised due to US corporate tax cuts
The Korea Institute for International Economic Policy (KIEP), a government-run research institute, has released its forecast for next year’s global economic growth rate. The main reason is said to be the stronger Trumpism, including protectionism and nationalism that will unfold after the election of President Donald Trump. He also presented a gloomy prediction that President-elect Trump’s tariff policy could cause serious disruption in the supply chain, making the risk of global stagflation (inflation rising amid economic recession) a reality.
On the 14th, KIEP Director Lee Si-wook held a press conference at the Sejong Government Complex and presented next year’s global economic growth rate at 3.0%, down 0.2 percentage points from the May forecast.
This is lower than the growth rate forecast released by the Organization for Economic Cooperation and Development (OECD, 3.2%) and the IMF (3.2%) before the U.S. presidential election.
Young-sik Jeong, head of KIEP’s International Macrofinance Department, said, “The launch of the new U.S. administration, deepening of national priorities and protectionism, the shock to China’s economic growth due to negative factors at home and abroad, increased financial market volatility during the monetary policy transition period, and increased real debt burden are downside factors to additional growth. “It works,” he said.
The possibility of a US-China trade war, resulting supply chain disruption, and global stagflation was also raised.
Director Jeong predicted, “The average US tariff rate on China is 19.3%, which is expected to be gradually increased in the future, putting pressure on China’s exports to the US.” He predicted, “The occurrence of trade friction will have a negative impact on world trade and global inflation.” .
He also said, “If the tariff rate on China is set higher than the current level and extensive import regulations, including those from allies, are introduced, retaliatory measures by China and major countries will lead to a sharp decline in global trade and serious disruption in the global supply chain.” He added, “Emerging countries in particular will face financial instability.” “The growth rate may decline, and the risk of global stagflation may become a reality,” he emphasized.
Although Trump’s re-election will have a shock to the global economy, the U.S. economy is expected to continue solid growth. KIEP raised its U.S. growth forecast for this year and next year by 0.4 percentage points. Accordingly, the United States is expected to grow by 2.8% this year and 2.1% next year. Among major countries, KIEP raised its growth forecast for next year in only four countries, including the United States, India (0.3 percentage points), Vietnam (0.3 percentage points), and Russia (0.1 percentage points).
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In particular, KIEP cited President-elect Trump’s large-scale tax cut policy as the reason for raising the U.S. growth forecast. KIEP said, “There is great uncertainty depending on the timing of the implementation of the new Trump administration’s tax cut policy and whether the Biden administration will revise the supply chain policy,” but added, “If the tax cut policy is implemented quickly, it can generally have a positive impact on investment and lead to economic growth next year.” “It can become a central axis,” he said.
The Chinese growth forecast was lowered by 0.4 percentage points. KIEP said, “The new Trump administration is expected to further strengthen sanctions, such as a 60% tariff on China, while maintaining the Biden administration’s regulatory measures against China. This could affect more than 60% of China’s exports to the United States.” “He predicted.
The exchange rate was expected to remain strong against the dollar for the time being. KIEP said, “The dollar will remain strong for the time being due to expectations of the new Trump administration’s policies,” and added, “A strong dollar is expected as additional interest rates are cut and exchange rate pressure on countries with trade surpluses with the U.S. is strengthened.” However, it was predicted that the dollar could weaken if the U.S. adjusts its policy level and expectations of interest rate cuts rise.
Director Lee predicted, “There are concerns within the U.S. that the tariff increase will increase pressure on prices,” and predicted, “It is highly likely that they will first use it as a negotiating chip and then move on to impose tariffs sometime next year when the economy stabilizes.”
