Even if tariff negotiations go well, growth won't exceed 1%... Car exports to the US will decrease by 4% [Bank of Korea also formalizes 0% growth this year]

Even if tariff negotiations with the United States proceed smoothly, the Bank of Korea has warned that this year's economic growth rate will not exceed 1%. Even if the US tariff rate is significantly reduced by the end of this year, the annual growth rate will remain at 0.9%, and there are concerns that it could plummet to 0.7% if trade conflicts between the US and China reignite. With automobiles, which have a large share of exports to the US, expected to be hit hardest, the Bank of Korea predicts that this year's growth rate will remain at 0.5% in the second quarter.

■ In the worst case, this year's growth rate drops to 0.7%

The Bank of Korea evaluated that the 0.7%p drop in this year's economic growth rate forecast in just three months is half due to the impact of the US-initiated tariff war. Lee Ji-ho, head of the Bank of Korea's research department, explained, "The growth rate forecast fell to 0.8% due to the impact of US tariff policies by 0.35%p," and "Unusual factors such as large wildfires and political instability acted as a downward pressure of 0.4%p, while the supplementary budget acted as an upward factor of 0.1%p."

The problem is that the downward pressure on the domestic economic growth rate could increase further if US-China conflicts reignite. The Bank of Korea predicts that if negotiations break down, mutual tariffs will be partially restored after the grace period, and if tariff rates rise further in the second half of the year and high-intensity retaliatory tariffs are imposed on other countries, this year's growth rate could fall to 0.7%. Excluding the negative growth recorded in 2020 (-0.7%), this figure is lower than during the financial crisis in 2009 (0.8%).

Even if trade negotiations with all countries, including China, proceed by July 9 (August 12 for China) during the tariff grace period and item tariffs already imposed fall to 10%, this year's economic growth rate is expected to remain at 0.9%. It was assumed that domestic tariff rates would rise to 20% during the third quarter and remain at that level.

On the 28th (local time), the US Court of International Trade ruled that "President Donald Trump exceeded his authority by imposing mutual tariffs on various countries" and declared it invalid. If only item tariffs remain and the US mutual tariffs are withdrawn, the situation could unfold similarly to or better than the Bank of Korea's optimistic scenario. Kim Woong, deputy governor of the Bank of Korea, explained, "There are still processes such as injunctions remaining," but "based on the initially expected growth rate for this year, it could increase by 0.1%p or more."

■ Korean cars hit directly by US tariffs

Among domestic industries, automobiles are expected to be hit hardest by the uncertainty of US tariffs. According to the Bank of Korea's report on 'The Impact of US Tariff Policies on Exports by Item' released on this day, in the case of automobiles, it is expected to decrease by 0.6% based on GDP goods exports and by 4.0% based on exports to the US. The Bank of Korea pointed out, "The impact on exports due to price increases after the imposition of tariffs in early April has not yet fully materialized, and it will become more apparent going forward," and "If domestic production of automobiles in the US expands further to avoid tariffs, exports may decrease further in the medium to long term."

In the case of steel and aluminum, under the same scenario, GDP goods exports and exports to the US are estimated to shrink by 0.3% and 1.4% annually, respectively. The Bank of Korea judged, "Although tariffs were imposed in March, the effect is not yet visible due to a 3-4 month contract and shipment lag," and "The negative impact will increase from the third quarter when existing contract periods end." Semiconductors are feared to retreat by 0.2% in GDP goods exports and by 0.5% in exports to China annually. It is pointed out that direct exports to the US or China will decrease, and indirect routes such as the reduction in global trade volume are also expected to be hit.

Meanwhile, this year's quarterly economic growth rate is predicted to remain at 0% growth, excluding the 0.2% negative growth in the first quarter.

eastcold@fnnews.com Kim Dong-chaneastcold@fnnews.com Kim Dong-chan