South Korea’s economic rebound is set to be held back by faltering overseas demand, according to new analysis by Fitch Ratings, which warns that weaker exports - dragged down by US tariff measures and a cooling Chinese economy - will act as a brake on growth prospects.

The agency notes that the country has been emerging from a spell of sluggish activity, aided by government stimulus, a stabilising property market and the resolution of earlier political uncertainty. Yet with exports making up roughly 40% of gross domestic product last year, any loss of momentum in foreign markets poses a material risk to the recovery.

Fitch reports that both global and domestic headwinds have left economic performance weaker than it had anticipated a year ago. Its September Global Economic Outlook suggests that Korea’s real GDP at the end of 2026 will fall around 1.8% short of projections set out in late 2024.

The agency now expects the economy to expand by 1.0% this year and 1.9% in 2026. The stronger figure for 2026 largely reflects statistical carry-over from a firmer second half of 2025. On a quarterly basis, however, growth is forecast to ease, with sequential expansion slowing to between 0.2 and 0.4% and net trade likely to detract from GDP as export growth moderates.

With output expected to remain below trend, both fiscal and monetary support are set to play a prominent role. The election of President Lee Jae-myung in June has helped steady the political backdrop, with unified control of the presidency and the National Assembly. A second supplementary budget passed after the vote is expected to bolster activity in the latter half of this year.

Fitch cautions that the balance of risks is skewed to the downside. Weaker global growth - particularly stemming from shifts in US trade policy—and softer-than-expected Chinese demand could deliver further blows to exporters. Persistent strains in the domestic property sector also threaten to depress investment. The agency adds that its projections do not factor in any potential uplift from the government’s 2026 budget, leaving room for outcomes to deviate depending on policy implementation.