South Korea’s central bank said Thursday that the country could see its growth rate drop to one-point-four percent this year or next year if U.S. President Donald Trump’s tariff war escalates.

The Bank of Korea(BOK), in its latest Monetary Policy Report, said the second Trump administration implemented its trade policies more quickly than expected and predicted that its impact on the global and domestic real economies will expand, leading the BOK to reevaluate future tariff policy scenarios.

In a baseline scenario that assumes the U.S. maintains its current tariffs on China and imposes lower tariffs on other major trade deficit countries, with a gradual reduction starting in 2026, the nation’s growth rate for this year can be expected to see a zero-point-one percentage point decline compared with November’s forecast, whereas next year’s growth rate would see a zero-point-two percentage point decline.

According to the BOK, this would put its 2025 growth forecast at one-point-five percent and its 2026 forecast at one-point-eight percent.

In a worst-case scenario where the tariff war intensifies and countries respond to the U.S. with strong retaliatory tariffs, South Korea’s economic growth rate may drop zero-point-one percentage point this year and zero-point-four percentage point next year, lowering the bank’s baseline estimates for both years to one-point-four percent.

The BOK predicted that downward pressure on domestic growth and prices will increase due to falling exports to the United States, as well as to other countries, on the back of slowing trade and weak investor sentiment due to increased uncertainties in the trade environment.

But in the optimistic scenario in which the U.S. maintains its current tariffs on China, imposes significantly lower tariffs on other major trade deficit countries, and gradually lowers tariffs on all countries in 2026, South Korea can be expected to post a zero-point-one percentage point increase in growth this year and a zero-point-three percentage point increase next year, from the baseline figures.

If the shock from U.S. tariffs is weaker than expected, the BOK predicted that growth will reach one-point-six percent this year and two-point-one percent in 2026.

In terms of the negative impact of U.S. tariff policies on domestic stock prices and long-term interest rates, the BOK believes they will be limited in Trump’s second term.

It explained that both stock prices and interest rates have already fallen significantly since the second half of last year due to the negative impact of U.S. tariff policies on domestic companies and expectations for a rate cut.