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 per cent and expected to fall below 1 per cent by the late 2040s, though the government hopes the new policies can lift the rate to 3 per cent.
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 per cent from a threatened 25 per cent, but still higher than the baseline 10 per cent that had been in place.
The finance ministry expects the export-reliant economy to grow 0.9 per cent this year, down sharply from the 2.0 per cent expansion last year and its previous projection of 1.8 per cent in January. The economy is expected to grow 1.8 per cent in 2026, the ministry said.
Exports are forecast to grow 0.2 per cent in 2025, but fall 0.5 per cent in 2026, according to the ministry. In 2024, exports jumped 8.1 per cent.
