[Yongsan Report] "Next Year's Economy Is Not at Crisis Level... BoK Is Conservative"

Differences Between Yongsan and Bank of Korea on Next Year's Growth Outlook
Presidential Office: "Bank of Korea Originally Conservative in Growth Assessment"
Yongsan Also Closely Watching Uncertainties Like Trump

The Bank of Korea's decision to lower South Korea's economic growth forecast to the 1% range for next year has sparked voices within the Presidential Office describing it as a "conservative assessment." While concerns about a low-growth shock in the 1% range next year are growing both inside and outside the Bank of Korea and the market, Yongsan's evaluation is somewhat positive. A senior official from the Presidential Office told Asia Economy on the 29th, "We do not see next year's economy as being in crisis," adding, "The Bank of Korea tends to take a conservative view when estimating growth rates."

Earlier, the Bank of Korea cut the base interest rate by 0.25 percentage points from 3.25% to 3.00% the day before, lowering its economic growth forecast for next year from 2.1% to 1.9%. This is below the potential growth rate (2%), interpreted as signaling that the Korean economy is entering a full-fledged low-growth phase. Global investment banks (IBs) such as JP Morgan (1.7%) and Goldman Sachs (1.8%) had already rated the downside risks to the Korean economy next year as high, and the Bank of Korea has now aligned with this view.

The difference between the Presidential Office and the Bank of Korea lies somewhat in their export outlooks. The Bank of Korea projected exports of $683 billion this year and $692 billion next year. Bank of Korea Governor Lee Chang-yong explained, "Export volumes in the third quarter dropped significantly, and we judged that structural factors such as intensified competition were more significant than temporary factors." This Bank of Korea forecast is lower than the Korea International Trade Association's outlook (this year $685 billion, next year $697 billion), which the Presidential Office referenced.

A senior official from the Presidential Office said, "The Korea International Trade Association expects a record high of $685 billion this year, but the Bank of Korea does not. Next year, the Bank of Korea's export forecast is also lower than those of the Trade Association or the Korea Institute for Industrial Economics and Trade," adding, "If this year's performance is good, the Bank of Korea's forecast for next year should also change." Regarding the Trump-related uncertainties cited by the Bank of Korea as a major downside risk to growth, the official said, "We still do not know," and added, "For example, the shipbuilding industry is expected to improve significantly going forward."

However, the Presidential Office also views next year's situation as challenging. The reason the Presidential Office has recently distanced itself from political disputes such as the court ruling on Lee Jae-myung, leader of the Democratic Party of Korea, and the controversy over the party member bulletin board involving Han Dong-hoon, leader of the People Power Party, and is focusing on the economy and people's livelihoods is because of this. The Presidential Office has instructed the Ministry of Economy and Finance and the Ministry of Trade, Industry and Energy to prepare response measures for sudden policies from the Trump administration, and internally is concentrating on support measures for self-employed workers directly linked to people's livelihoods and policies to overcome polarization.

There is also analysis that President Yoon, who is preparing a cabinet reshuffle, will renew the economic team in the cabinet. The intention is to actively support key industries such as semiconductors, automobiles, and shipbuilding in the second half of his term to seize an opportunity for economic recovery. It is known that they are currently seeking heavyweight figures for this purpose. In particular, the Presidential Office is putting great effort into the economic policy direction announcement scheduled for January next year. A Presidential Office official said, "Many new policies will be included then."

President Yoon Suk-yeol is delivering a greeting at the 56th National Breakfast Prayer Meeting held at the Shilla Hotel in Jung-gu, Seoul on the 22nd. Photo by Yonhap News