Newsletter N°83 - December 2025 

Some key indicators suggest that China’s economy may have been facing a slowdown in recent months. Manufacturing activity remained in contraction in November, marking a record streak of decline, and non-manufacturing activity also contracted.

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The trade environment with China’s key economic partners appears extremely fragile, with the details of the temporary truce in the tariff dispute with the U.S. still under negotiation, and a severe diplomatic crisis with Japan over Taiwan threatening to spill over into the economic sphere (if it has not already).

Even if growth in the final quarter of the year is likely to become the weakest since 2022 and the final phase of the COVID lockdowns, the overall 5% growth target for 2025 still seems within reach, and deep reforms are therefore unlikely to be announced.

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As the won is tumbling to historic low levels, widening the gap between domestic-oriented firms and export-driven champions, the Bank of Korea decided to maintain its policy rate at 2.5%, in a bid to curb excessive borrowing. This comes as residential property prices in Seoul are literally boiling and currently rising at one of the fastest paces in the world.

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Caught between China and Japan, South Korea is trying to carefully navigate the turmoil to avoid being hit by the crossfire and is for now avoiding taking sides. The country recently went through a period of heightened diplomatic tensions with China following the deployment of U.S. THAAD missiles on its soil, resulting in direct and relatively severe effects on trade with long-lasting economic repercussions, most notably Chinese consumer boycotts of Korean stores and a sharp drop in Korean car sales in China.