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South Korea’s economy contracted in the first quarter, with political turmoil hitting consumer sentiment in Asia’s fourth-largest economy while business concerns grew over President Donald Trump’s tariffs on exports to the US.
South Korean GDP fell 0.2 per cent quarter on quarter in the first three months of this year, according to data released by the Bank of Korea hours before senior ministers were set to launch trade talks with the Trump administration on Thursday. The economy contracted 0.1 per cent from a year earlier.
The GDP contraction came as worries intensified during the first quarter about US tariffs and the Trump administration’s imposition in mid-March of a 25 per cent duty on steel imports from South Korea.
The data showed domestic consumption fell 0.1 per cent in the quarter as consumers cut back on spending amid a political crisis sparked by President Yoon Suk Yeol’s shortlived attempt to impose martial law in December. Yoon was dismissed from office this month, forcing a new presidential election that is scheduled for June 3.
South Korea’s growth prospects have dimmed since Trump this month imposed 25 per cent tariffs on autos and auto parts, which together account for about a third of Korea’s exports to the US.
Finance minister Choi Sang-mok and industry minister Ahn Duk-geun were scheduled to meet their American counterparts in Washington later on Thursday for negotiations over tariffs. Ahn has said he will seek to reach a speedy agreement on the lifting or reduction of the auto duties.
Acting president Han Duck-soo told the Financial Times last week that South Korea would “not fight back” against Trump’s tariffs, citing the country’s historical debt to Washington.
Han said Seoul would instead seek “solutions which are more win-win for both”.
South Korean customs data issued on Monday suggested the US duties were already having an impact, with exports down 5.2 per cent from a year earlier in the first 20 days of April. US-bound shipments fell 14.3 per cent and those to China 3.4 per cent.
As well as the duties on autos, the US has introduced a blanket 10 per cent tariffs on imports from South Korea.
The government is preparing a Won12tn ($8.4bn) extra budget to cope with the tariffs but economists have said it will not be enough to fully cushion the blow.
The Bank of Korea, which held its base interest rate unchanged at 2.75 per cent last week, has hinted it will cut rates in the coming quarters to support slowing growth.
