Containers are skacked to be shipped at a port in Busan, Feb. 12. Yonhap

The Bank of Korea (BOK) on Tuesday sharply lowered its outlook for Korea's economic growth this year to 1.5 percent as the country is facing a political chaos and the Donald Trump administration's sweeping tariff scheme and other downside risks.

The latest figure marks a 0.4 percentage-point fall from its projection presented in November.

The country's potential growth rate is at 2 percent, and this year may mark the first time ever that the country's yearly growth rate falls below the level.

The BOK's latest projection is more pessimistic than those of other major institutions.

The finance ministry earlier forecast the economy to grow 1.8 percent this year, and the Organization for Economic Cooperation and Development (OECD) presented a 2.1 percent expansion.

Presenting a bleaker forecast, the BOK lowered its key rate by a quarter-percentage point to 2.75 percent.

As for next year, the BOK presented a 1.8 percent expansion, unchanged from its November forecast.

"Export growth has weakened amid a slump in consumption, driven by increased political uncertainties following the declaration of martial law and by a deterioration in weather conditions," the BOK said in a released statement.

"Trends in the domestic demand recovery and in export growth are forecast to be lower than previously expected due to deteriorating economic sentiment and due to U.S. tariff policies," it read.

The BOK also noted "high uncertainties" regarding trade policies in major countries and the Federal Reserve's monetary policy path, as well as economic stimulus measures by the Korean government and changes in the domestic political situation.

Korea's real gross domestic product (GDP) increased 2 percent in 2024, lower than the BOK's forecast of a 2.2 percent expansion.

In the fourth quarter alone, the economy barely grew 0.1 percent on-quarter, far lower than the BOK's forecast of 0.4 percent growth, after President Yoon Suk Yeol's shocking, albeit short-lived, martial law declaration dented the financial market and private consumption.

Adding to the woes is that Yoon's impeachment and the leadership vacuum left the country without an active response to Trump's trade policies.

As for inflation, the BOK maintained its estimate for 2025 at 1.9 percent.

Consumer prices, a key gauge of inflation, rose by the largest margin in six months of 2.2 percent on-year in January due mainly to high global oil prices and the weak local currency.

But the BOK expected weak domestic demand to offset inflationary pressure.

"The future path of inflation is likely to be affected by exchange rates and global oil prices, by economic conditions at home and abroad, and by the government's price stabilization measures," the BOK said. (Yonhap)