SEOUL, Aug 22 (Reuters) – South Korea has declared artificial intelligence investment a central pillar of its economic strategy, following a significant downgrade in its 2024 growth outlook due to adverse trade conditions linked to U.S. tariff policies. n nAs part of its first mid-year economic blueprint under President Lee Jae Myung, the finance ministry announced plans to roll out policy support in the second half of 2025 for 30 major initiatives focused on AI and technological innovation. n nThese initiatives will span AI applications in robotics, autonomous vehicles, maritime vessels, consumer electronics, unmanned aerial systems, semiconductor manufacturing, smart factories, and advanced materials, as well as cultural exports including K-beauty and K-food. n nThe ministry stated that a comprehensive shift toward AI integration is essential to overcoming economic stagnation driven by demographic challenges, particularly the nation’s historically low fertility rate. n nThe government intends to deploy financial support mechanisms, tax benefits, and regulatory reforms as part of the package. Additionally, it will establish a 100 trillion won ($71.56 billion) investment vehicle in collaboration with private industry to channel funds into strategic technological domains. n nOfficials aim for South Korea to rank among the top three global leaders in AI capability, with the goal of lifting the country’s long-term growth potential. Currently estimated at around 2%, the potential growth rate is projected to dip below 1% by the late 2040s without intervention. The administration hopes the new measures can raise it to 3%. n nDespite headwinds, the economy expanded in the second quarter at its quickest pace in over a year, supported by resilient tech exports and recovering domestic consumption. However, ongoing trade tensions, particularly higher U.S. tariffs, remain a concern. n nIn July, Seoul reached a trade agreement with Washington that lowered the tariff rate on South Korean goods to 15%, down from a proposed 25%, though still above the previous 10%. n nThe finance ministry now forecasts 0.9% GDP growth for 2024, a steep drop from 2.0% in 2023 and below its earlier estimate of 1.8%. Growth is projected to rebound to 1.8% by 2026. n nExport performance is expected to show modest 0.2% growth in 2025, followed by a 0.5% contraction in 2026, after a strong 8.1% increase in 2024. n nPresident Lee’s administration plans to increase next year’s fiscal budget at a faster pace than in 2024, underscoring its commitment to active economic intervention. n nAdditional policy priorities unveiled include expanded childcare support, improved work-life balance incentives, stricter industrial safety enforcement, regulatory frameworks for digital assets, and capital market reforms aimed at securing developed-market status from a major global equity index provider. n n($1 = 1,397.5000 won) n nReporting by Jihoon Lee Editing by Ed Davies
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South Korea makes AI investment a top policy priority to support flagging growth
SEOUL, Aug 22 (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. n nIn 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. n nSign up here. n nThese 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”. n n”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. n nWhile 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. n nThe 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. n nSouth 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%. n nAsia ‘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. n nLast 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. n nThe 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. n nExports are forecast to grow 0.2% in 2025, but fall 0.5% in 2026, according to the ministry. In 2024, exports jumped 8.1%. n nLee ‘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. n nOther 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. n n($1 = 1,397.5000 won) n nReporting by Jihoon Lee Editing by Ed Davies