By Jihoon Lee
SEOUL (Reuters) -South Korea vowed on Friday to make investment in artificial intelligence a top policy priority, as the government slashed its economic growth projection for this year due to trade headwinds caused by U.S. tariffs.
In the first bi-annual economic policy plan under President Lee Jae Myung’s new administration, the finance ministry said it would introduce from the second half of 2025 policy packages for 30 major AI and innovation projects.
These include AI technologies for robots, cars, ships, home appliances, drones, factories and chips, as well as advanced materials and cultural products such as “K-beauty” and “K-food”.
“A grand transformation into AI is the only way out of growth declines resulting from a population shock,” the ministry said in a statement, referring to South Korea’s record low birthrate.
While the government plans to include measures such as financial investments, tax incentives and regulatory improvements in the packages, it said it would also create a 100 trillion won ($71.56 billion) fund, jointly with the private sector, to invest in strategic sectors.
The policy plans aim to make the country one of the world’s top three AI powers and boost potential economic growth rates in a country with the world’s lowest birth rate, the ministry said.
South Korea’s potential growth rate is estimated at around 2% and expected to fall below 1% by the late 2040s, though the government hopes the new policies can lift the rate to 3%.
Asia’s fourth-largest economy grew in the second quarter at the fastest pace in more than a year, as consumer demand rebounded and technology exports remained robust, but still faces trade uncertainties due to higher U.S. tariffs.
Last month, South Korea agreed to a U.S. trade deal that reduces tariffs on the Asian ally to 15% from a threatened 25%, but still higher than the baseline 10% that had been in place.
The finance ministry expects the export-reliant economy to grow 0.9% this year, down sharply from the 2.0% expansion last year and its previous projection of 1.8% in January. The economy is expected to grow 1.8% in 2026, the ministry said.
Exports are forecast to grow 0.2% in 2025, but fall 0.5% in 2026, according to the ministry. In 2024, exports jumped 8.1%.
Lee’s liberal administration said it would increase government budget spending for next year at a higher rate than this year, emphasising its proactive fiscal policy stance.
Other major policy plans announced on Friday include support measures for childcare and work-life balance, stronger sanctions to prevent industrial accidents, regulatory frameworks for digital assets and capital market reforms to win a developed-market designation from a global stock index provider.
($1 = 1,397.5000 won)
(Reporting by Jihoon LeeEditing by Ed Davies)
