[Geumtongwi poll]② "Key Threats to Korean Economy: Real Estate PF and Trump Risk"

Survey of 20 Economic Experts
Second Half Threats Are Real Estate PF and US Presidential Election
Q1 GDP Surprises with Growth Due to Strong Private Consumption and Steady Exports

Economic experts have identified real estate project financing (PF) and the U.S. presidential election as the major risk factors for the South Korean economy in the second half of the year. Analysis also suggests that the 'surprise growth' in the first quarter was due to robust private consumption and exports.

On the 20th, Asia Economy conducted a survey of 20 economic experts, including economists from domestic and international banks, economic research institutes, and securities firms. The majority of experts (7 respondents) cited real estate PF as the biggest risk to the South Korean economy in the second half of the year (multiple answers allowed). The U.S. presidential election (4 respondents), international oil prices (3 respondents), and sluggish domestic demand (3 respondents) followed.

Regarding the cause of the first quarter's GDP surprise, the most common answers (multiple answers allowed) were 'robust private consumption' (7 respondents) and 'steady exports' (7 respondents). Additionally, a significant number attributed it to the 'base effect' (6 respondents), and 5 respondents said it was due to a recovery in construction investment. Some experts expressed skepticism about the results exceeding expectations.

7 out of 20 Experts Identify Real Estate PF as the Biggest Risk in the Second Half

Among the 20 experts, 7 pointed out that the risk of real estate PF defaults could increase in the second half. Woo Hye-young, a researcher at Ebest Investment & Securities, said, "If the high interest rate and high inflation environment persist longer than initially expected, the domestic demand recovery may be weaker than anticipated," adding, "The longer the domestic demand recovery is delayed, the harder it will be for the real estate market to recover, so the real estate PF issue will inevitably continue into the second half." Heo Ji-soo, a senior researcher at Woori Financial Management Research Institute, stated, "Real estate PF defaults could lead to continued sluggishness in the construction and real estate markets." Jeong Seong-tae, a researcher at Samsung Securities, expressed concern, saying, "If interest rate cuts are delayed, PF defaults may persist in the second half."

Four experts identified the U.S. presidential election in the second half as a major risk factor. The upcoming U.S. election scheduled for November is drawing global attention as President Joe Biden and former President Donald Trump are expected to compete. Since Biden and Trump have starkly different economic policies, the global economic outlook could change depending on the election results. In particular, if Trump's chances of winning increase, tensions between the U.S. and China could escalate, potentially negatively impacting the South Korean economy. Joo Won, head of economic research at Hyundai Research Institute, said, "Whether Biden or Trump wins, the segmentation between the U.S. and China will deepen."

Some experts also pointed to unstable international oil prices as a risk. Ahn Jae-kyun, an economist at Shinhan Investment Corp., noted, "If geopolitical risks originating from the Middle East escalate and international oil prices exceed $100 per barrel, expectations for the Bank of Korea to cut the base interest rate within the year may disappear," adding, "If the domestic trade balance turns to a deficit, further depreciation of the Korean won could be a concern." Kang Seung-won, a researcher at NH Investment & Securities, said, "International oil prices and U.S. interest rate cuts are the biggest risk factors," emphasizing, "As South Korea is a small open economy, external variables are always the greatest risk factors."

Most Predict Economic Growth Rate in the Mid-2% Range This Year

Regarding the 'surprise growth' in first-quarter GDP, the largest number of respondents (multiple answers allowed) attributed it to robust private consumption (7 respondents) and steady exports (7 respondents). Park Sang-hyun, a research fellow at Hi Investment & Securities, pointed out, "The better-than-expected construction investment and private consumption were the causes of the GDP surprise." Park Seok-gil, a research fellow at JP Morgan, evaluated, "Net exports were steady within the expected range, and the contribution of domestic demand growth exceeded expectations," adding, "Although domestic retail sales data representing goods consumption were weak until March, overall consumption demand including the service sector was steady."

However, many also emphasized the need to consider the base effect (6 respondents). Lee Jae-hyung, a researcher at Yuanta Securities, answered, "The net export effect was significantly influenced by the base effect." Moon Hong-chul, a research fellow at DB Financial Investment, said, "The GDP surprise was simply due to fluctuations in seasonal adjustments." Jo Yong-gu, a research fellow at Shin Young Securities, said, "Private consumption was stronger than expected," but also noted, "Construction investment was temporarily overestimated."

Meanwhile, many experts have revised their economic growth forecasts upward for this year. Before the April Monetary Policy Committee meeting, most predicted growth in the low 2% range, but after the first-quarter GDP announcement, many raised their forecasts to the mid-to-high 2% range. Among 17 experts, 7 predicted growth in the low 2% range: 2.2% (2 respondents), 2.3% (2 respondents), and 2.4% (3 respondents). Another 7 predicted growth in the mid-to-high 2% range: 2.5% (3 respondents), 2.6% (2 respondents), 2.7% (1 respondent), and 2.8% (1 respondent). Others predicted 2.5?2.6% (1 respondent), low-to-mid 2% range (1 respondent), and mid-2% range (1 respondent).