A South Korean state-funded think tank slashed its outlook for the country¡¯s growth this year, reflecting the fallout from U.S. President Donald Trump¡¯s tariff campaign on the trade-reliant nation as its presidential race hits full swing.

The Korea Development Institute now sees the country¡¯s economy growing 0.8% in 2025 after expanding 2% last year, it said in its semiannual economic outlook released on Wednesday. The projection is down from February¡¯s forecast of 1.6% and underscores the pressing economic challenges South Korea faces as voters prepare to elect their new leader on June 3.

The election is a crucial step in putting the export powerhouse back on track after ex-President Yoon Suk Yeol¡¯s short-lived martial law decree in December unleashed the country¡¯s worst political crisis in decades.

Shoring up growth will be a key task for Yoon¡¯s successor. Democratic Party candidate Lee Jae-myung, who¡¯s leading in polls, and chief rival Kim Moon-soo of the People Power Party have been trying to persuade voters that they are the right person to deal with the global trade war.

A recent poll showed Lee leading with 49.5% support, followed by Kim with 38.2% and Lee Jun-seok of the conservative Reform Party at 5.7%.

During a televised debate with his party rivals last month, Lee Jae-myung singled out trade negotiations with the U.S. as the most pressing task to tackle in his first 100 days in office, if elected, explaining that his team was already making preparations so he could get to work swiftly to resolve the issue. PPP¡¯s Kim has said he will revive the economy by supporting companies.

South Korea¡¯s economy contracted in the first quarter, demonstrating the fragile state of business activity even before exporters absorbed the full force of Trump¡¯s new duties, and raising fears over the potential for further damage in the region.

South Korea, a key U.S. ally, was slapped with a 25% across-the-board tariff that has been temporarily reduced to 10% for 90 days from early April. As with other nations, South Korea also faces a 25% levy on shipments of cars, steel and aluminum.

Trade chiefs will be angling to speak with U.S. counterpart Jamieson Greer when officials gather in Jeju, South Korea, for an Asia-Pacific Economic Cooperation meeting this week.

¡°Our economy is expected to slow down due to the worsening trade environment,¡± the think tank said. ¡°An easing monetary policy is desirable to reduce the downward pressure on prices that may result from slowing domestic and foreign demand.¡±