South Korea’s state-run Korea Development Institute (KDI) cut its 2025 GDP growth forecast to 0.8% on Wednesday, down sharply from its earlier estimate of 1.6%. The revision makes KDI the first major domestic institution to project sub-1% growth this year, citing escalating trade tensions, a prolonged construction slump and sluggish consumer demand as key drags on the economy.

The downgrade comes despite the National Assembly’s approval of a $9.7 billion (13.8 trillion won) supplementary budget earlier this month and a $257.6 billion (366 trillion won) emergency export rescue package in February. KDI’s outlook projects a 4.2% contraction in construction investment, just 90,000 new jobs and consumer inflation of 1.7%. While the central bank may ease interest rates to boost the South Korean economy, KDI warned that the country’s fiscal space is narrowing, urging restraint on additional government spending.