(MENAFN) South Korea’s economy continues to struggle, dragged down by sluggish domestic demand and escalating external risks linked to the United States’ “aggressive” tariff stance, according to a state-run think tank’s report released Tuesday.

Seoul’s Korea Development Institute (KDI) highlighted in its latest analysis that the economy remains stagnant, with the construction sector still depressed and manufacturing output shrinking, slowing overall production growth, media reported.

Despite robust global semiconductor sales, the KDI pointed out that South Korea’s exports to the US have weakened, particularly in vehicle-related industries hit hard by Washington’s stringent tariff measures. This has contributed to the deceleration in manufacturing output.

The report stated, “While consumer sentiment is on the mend, pointing to a possible improvement in domestic demand conditions, trade-related uncertainty remains elevated with the expiry of the U.S.’ mutual tariff suspension approaching.”

In June, South Korea’s exports grew 4.3% year-on-year to $59.8 billion, driven by strong semiconductor demand worldwide.

However, exports destined for the US fell 0.5% to $11.24 billion amid broad tariff impositions introduced by the Trump administration.

Industrial production also slipped 1.1% in May compared to the previous month, extending a downward trend for a second consecutive month.

Facility investments decreased by 4.7% during the same period, marking the third straight month of decline.

Starting in April, President Trump initiated reciprocal tariffs on several trading partners, including a 25% duty on South Korean goods. Although this tariff was temporarily suspended to allow bilateral talks until July 8, Trump announced late Sunday that a 25% tariff on all South Korean products will take effect beginning August 1.

MENAFN08072025000045017169ID1109772071