Acting President Choi Sang-mok speaks during a meeting of economy-related ministers at Seoul Government Complex in Gwanghwamun, Thursday. Yonhap

The Korean economy is expected to grow 1.8 percent this year, the finance ministry said Thursday, a significant downgrade from the previous forecast of 2.2 percent made in July last year.

Underlying the pessimism is weak exports amid diminishing global competitive edge of leading Korean industries, compounded further by tariff and trade uncertainties from the second Trump administration. Exports growth forecast for this year was trimmed to 1.5 percent this year, down from 8.2 percent last year.

Also at play is President Yoon Suk Yeol's botched martial law declaration on Dec. 3, last year, followed by political turmoil, including the National Assembly's passage of a motion to impeach Yoon and Prime Minister Han Duck-soo.

The figure of 1.8 percent is lower than projections made by domestic and global economic and financial institutions — 2.1 percent by the Organization for Economic Cooperation and Development, 2 percent by the International Monetary Fund, the Korea Development Institute and Asian Development Bank, and 1.9 percent by the Bank of Korea.

Chief among the government economic priorities for this year will be the stable management of the country's global creditworthiness and the revitalization of stagnant domestic spending.

The former was brought to the fore by the martial law fiasco that led to spillovers into the broader financial and foreign exchange (FX) markets.

Equally important is the restoration of tanking consumer confidence, long constrained by elevated debt service costs from years of post-pandemic monetary tightening as well as inflation. The tragic Jeju Air plane crash Sunday fueled further sharp declines in key economic indicators.

Whether the government will abandon fiscal conservatism to shift to implementing a stimulus package remains to be seen. BOK Governor Rhee Chang-yong said limited-scope, targeted extra budget should assist the vulnerable groups of low-income earners and self-employed, as warranted by extended economic slowdown and tempered inflation.

"We will prioritize strengthening the livelihood of the public," acting President Choi Sang-mok said during a meeting of economy-related ministers at Government Complex Seoul.

"Recovery of consumption, construction sectors and municipal economies will be among our focus. Income tax deductions will be expanded in the first half and spending at small businesses will be granted greater tax benefits. Yellow umbrella programs will be expanded."

The inclusion of Korea in the FTSE Russell World Government Bond Index (WGBI) and the Corporate Value-up programs will proceed smoothly, supported by cash grants and tax incentives for foreign investors, he added.

"The ceiling for cash grants will be permanently raised up to 20 percentages points. Up to 75 percentage points of grants will be allowed for this year," he said.

Heightened volatility in the financial and FX markets will be neutralized by immediate liquidity measures, he said, underpinned by investor-friendly capital market advancement policies.

"The government will raise the ceiling for forward FX positions for local banks to 75 percent of their equity capital, up from the previous 50 percent, in an effort to spur steady inflow of foreign investment into Korea. Similarly, the ceiling for foreign bank branches will be raised to 375 percent, up from 250 percent," he said.

Dividend income tax for retail investors will be cut to 9 percent, down from the current 15.4 percent. The Value-up drive enables separate filings of capital gains tax, vastly reducing the tax rate to a flat 25 percent from the previous 45 percent. Currently, the rate goes as high as 49.5 percent combined with other earned incomes, in cases of financial, business or rent incomes exceeding 20 million won ($13,635) per year.

Trade condition uncertainties will be weathered by sharpening the competitive edge of industry leaders including semiconductor and automobile businesses.

The government will foster innovation of leading industries, nurturing and strengthening promising entrants.

"More small- and medium-sized enterprises will be eligible for temporary tax credits for investments and accelerated depreciation of their assets whereby their taxable income is reduced at a faster pace. The tax relief will help them make greater investments in new equipment and other capital assets, encouraging more to start and continue businesses."

Meanwhile, Rhee defended Choi for appointing two Constitutional Court justices, squarely countering criticism for what the Cabinet members and political appointees have characterized as a "misjudged overreach."

"I have been advised not to go off-script, but I cannot help but make a comment," he said during the New Year's address.

"Critics of Choi should produce answers about the far-reaching economic consequences, had he not braced with the appointments."

The architects and enforcers of policy initiatives should, in his view, consider the implications of their criticism for offshore investors and global credit rating agencies, a critical factor in the country's potential downgrade in sovereign rating.

Korea has, he said, weathered the initial phase of investor concerns over wild financial market volatilities, with many reassured of the country's robust economic fundamentals.

However, political turmoil from the impeachment of Yoon and Han has since intensified, certain to impact the credit rating.

"Once the rating goes down, it is extremely difficult to have it raised back up. Choi made the right decision. It was a wise and necessary choice."