[Geumtongwi poll]③ Next Year's Inflation Expectations Raised, Growth Rate Lowered

Delay in Inflation Target Convergence
Prolonged Domestic Demand Slump Expected

The government's 'October price stabilization theory' has missed the mark, and with the uncertainty in raw material prices due to geopolitical risks not dissipating, the prevailing view is that consumer prices this year and next will exceed the Bank of Korea's (BOK) previous forecasts. Although the semiconductor market is showing signs of recovery in the second half of this year, concerns remain that the economic growth rate for this year will slightly fall short of projections due to a slower-than-expected recovery in the Chinese economy. Next year's growth rate is also expected to generally align with the BOK's forecast, driven by an IT-centered export recovery, but there is a significant possibility of downward revision as high inflation and high interest rates reduce domestic household consumption capacity.

On the 27th, Asia Economy conducted a survey of 21 analysts from domestic and international securities firms, as well as researchers from banks and economic research institutes. The results showed that 15 respondents believed this year's consumer price forecast would exceed the BOK's August projection, and 9 believed next year's would do the same. The BOK is scheduled to announce its revised economic outlook on the 30th. In August, the BOK projected consumer price inflation rates of 3.5% for this year and 2.4% for next year. The economic growth rate forecasts were 1.4% and 2.2%, respectively.

Specifically, among the 21 experts, 9 predicted that this year's consumer price inflation rate would be adjusted upward by 0.1 percentage points to 3.6%, compared to the BOK's forecast. This was followed by 5 respondents expecting 3.7%, and 1 expecting 3.8%. Five experts responded with the same 3.5% as the BOK's forecast. Yoon Seok-jin, a researcher at Hana Financial Management Research Institute, said, "The recent 2-3 months have reflected a wider-than-expected inflation increase due to expanded volatility in international oil prices and rising agricultural product prices." He added, "Although international oil prices have recently declined, domestic public utility fee hikes and rising agricultural product prices are limiting the pace of inflation slowdown, so the inflation rate this year is expected to rise to 3.6%."

Regarding next year's consumer price forecast, 8 experts predicted the BOK's forecast of 2.4%, the largest group, but 9 respondents expected it to exceed the BOK's projection. Heo Moon-jong, head of the research institute at Woori Financial Group, said, "The uncertainty in oil prices caused by the Israel-Hamas conflict has not been resolved, and there are accumulated factors of public utility fee increases, so there is a high possibility of upward revision compared to the original forecast."

"Next year's growth rate 2.2%... Possibility of downward revision"

Regarding this year's growth rate forecast, 9 respondents each predicted it would either meet the BOK's forecast of 1.4% or be revised downward to 1.3%, showing a tight split. Jo Yong-gu, a researcher at Shin Young Securities, explained, "The export growth rate compared to the same month last year turned positive in October, and the recovery trend centered on net exports continues, so achieving the 1.4% forecast is possible." Yoon Yeo-sam, a researcher at Meritz Securities, said, "Even if the export market recovers, domestic demand contraction is intensifying, so this year's growth rate is estimated to be lower than initially expected at 1.3%." Kim Ji-na, a researcher at Eugene Investment & Securities, added, "Exports have rebounded, but prolonged domestic demand weakness will cause the growth rate to slightly fall short of the BOK's forecast."

In this survey, 10 respondents believed the BOK would maintain its 2.2% growth forecast for next year, the largest group, while 8 expected a downward revision. Kim Sung-soo, a researcher at Hanwha Investment & Securities, said, "Consumption may be sluggish, but the business conditions of key export items such as semiconductors are improving. The United States, a major trading partner, is expected to maintain a favorable economic trend next year, and China appears to have passed its low point as of the second quarter of this year."

On the other hand, Kang Min-joo, an economist at ING Bank, predicted, "Despite the U.S. economic slowdown, IT-centered export recovery will support overall growth. However, as household consumption capacity decreases and construction investment weakens, growth may slow in the first half of next year and fall to 1.8% annually."