South Korea’s Q1 Slump Signals Trade War Fallout

 In a sobering blow to Asia’s economic powerhouse, South Korea’s economy contracted by 0.2% in the first quarter of 2025, as escalating global trade tensions battered its export-driven growth, the Bank of Korea announced on April 24, 2025. 

The unexpected shrinkage, reported by Bloomberg, marked a stark reversal from Q4 2024’s 0.6% expansion, with fears mounting that a prolonged U.S.-China trade war could deepen the downturn. South Korea, a bellwether for global trade, now faces a precarious path as its semiconductor and automotive sectors reel.

The contraction was driven by a 1.8% drop in exports, with chipmakers like Samsung and SK Hynix hit hard by U.S. tariffs and China’s retaliatory measures. Private consumption also fell 0.4%, reflecting cautious spending amid rising inflation, which hit 3.2% in March. Construction investment plummeted 3.5%, hampered by high interest rates, though government spending rose 0.7%, offering some cushion. The Bank of Korea, maintaining its 3.5% policy rate, signaled potential rate cuts if trade pressures persist, a move analysts view as critical to reviving growth.

Acting President Han Duck Soo, addressing the nation, vowed to bolster export competitiveness through tax incentives and innovation in AI and green tech. Yet, with China’s economic slowdown and Trump-era trade policies looming, South Korea’s 2025 growth forecast was slashed to 1.9% from 2.3%. The KOSPI index fell 1.5% post-announcement, reflecting investor unease.