Hyundai Research Institute "South Korea's Economy to Grow 2.2% Next Year... Private Consumption and Facility Investment Recovery"

Private Consumption Rises 2.0%... Construction Investment Conditions Improve
Global Economy Maintains 3.0% Growth Trend with Pivot

It is forecasted that the South Korean economy will grow by 2.2% next year.

In the '2025 South Korean Economic Outlook' report released on the 15th, Hyundai Research Institute predicted that the real gross domestic product (GDP) growth rate will reach 2.2% next year, supported by a recovery in private consumption and facility investment.

Citizens shopping at a large supermarket in Seoul / Photo by Yonhap News

Although the indicators suggest a low-high pattern, the strong performance in the second half is attributed to the base effect from the first half, and the first and second halves are expected to show a similar economic trend in reality.

By sector, the institute expects private consumption to rise by 2.0%, driven by lower interest rates, expanded household disposable income, improved consumer sentiment, and maintained employment conditions.

According to the institute, construction investment is expected to improve due to reduced financial procurement costs from interest rate cuts and a smooth landing of real estate project financing (PF). However, the growth rate (0.6%) is projected to slow compared to this year due to decreases in social overhead capital (SOC) budgets and housing permits. Facility investment growth is forecasted at 3.8% next year, with improved capital procurement conditions revitalizing investment sentiment and leading to a recovery.

Next year's export growth rate is predicted to slow to 5.0% compared to this year's forecast of 9.2%, due to the base effect from the strong growth this year. The institute expects the global economy to maintain a moderate growth trend, with stable import demand from major countries. In particular, the global information and communication technology (ICT) sector is also expected to recover, supporting export growth. Regarding the current account balance, it is anticipated to expand slightly compared to this year due to a deterioration in the service balance.

Inflation next year is expected to increase by 2.1%, maintaining a downward stabilization trend due to a weak domestic demand recovery and stable import prices from the strengthening of the Korean won. Employment is expected to improve with increased manufacturing employment driven by export growth and better construction sector employment. However, the institute analyzed that the scale of new job creation will shrink due to factors such as reductions in public jobs. The unemployment rate is forecasted at 2.7%, with 170,000 new jobs expected annually.

Meanwhile, the institute expects the global economy to maintain a 3.0% growth trend next year, supported by improved financial and investment environments due to the global pivot (monetary policy shift), economic stimulus measures in major countries, and improvements in the manufacturing sector.