[Click eStock] KB Securities "Export Headwinds and Limited Domestic Recovery, 2025 Growth Rate Forecast Downgraded"

On the 4th, KB Securities stated, "Given the recent headwinds in exports and the strengthening environment where domestic demand recovery is limited, we have revised down the 2025 growth rate forecast from the previous year-on-year 1.9% to 1.8%."

Exports have already shown signs of slowing after reaching a peak. This was also confirmed in November exports. Even considering one-off factors such as severe weather conditions like heavy snow and storms at the end of the month, and strikes by major car parts manufacturers at the beginning of the month, the growth rate of export amounts for major items generally slowed or the absolute amounts gradually decreased.

Uncertainty in U.S. trade policy poses a downside risk to next year's exports. As seen in November, when elections took place, the U.S. trade policy uncertainty index surged by 660% compared to the previous month, reaching levels seen in 2019. Recently, President-elect Trump mentioned imposing a 25% tariff on Canada and Mexico and an additional 10% tariff on China. In response, just four days later, Canadian Prime Minister Trudeau visited President-elect Trump's residence to persuade him and promised to strengthen border controls.

Although President-elect Trump has not directly mentioned Korea yet, there is a high possibility that tariffs could be applied to Korea as well to increase bargaining power in future negotiations. The extent of the impact will vary depending on the negotiation outcomes, but it is a significant source of uncertainty for domestic exports.

There is an expectation that private consumption, facility investment, and intellectual property product investment will rebound based on a low base, but the momentum is insufficient.

While employment remains weak, the recent elevated exchange rate level has weakened trade conditions, which may limit the extent of domestic demand recovery. Recently, international oil prices have declined and domestic demand pressures are weak, so consumer prices themselves are not problematic. The November consumer price inflation rate also recorded a low level, falling short of expectations at -0.3% month-on-month and 1.5% year-on-year.

However, the high dollar-won exchange rate level, a counterbalance to the strong U.S. dollar, adversely affects Korea's trade conditions and does not help domestic demand. Recent studies estimate that a 1% increase in the exchange rate raises consumer prices by about 0.1%. Considering the current inflation rate, this level of price increase is not a major issue, but the underlying loss in real domestic income is an unwelcome factor. Researchers Heejin Kwon and Seyoung Kim stated, "In a situation where consumption and investment sentiment are already sluggish, more proactive policy support is needed to stimulate demand."