Warning Issued: South Korea's Economic Growth Rate May Plunge to 1.0% This Year

Capital Economics Lowers South Korea's Growth Forecast from 1.1% to 1.0%
Morgan Stanley Sees Possibility of Bank of Korea Revising Outlook to 1.5%

As South Korea's economic growth forecast for this year continues to be revised downward, an overseas research institute has predicted that Korea's growth rate could fall to 1.0%.

According to the financial sector on the 21st, the UK-based Capital Economics (CE) lowered its forecast for South Korea's real gross domestic product (GDP) growth rate for this year from 1.1% to 1.0% in a report released on the 19th. This is significantly below the average growth forecast of 1.6% presented by major foreign investment banks (IBs). Capital Economics' forecast is 0.2 percentage points lower than JP Morgan's 1.2%, which is the lowest among the IBs.

Following President Donald Trump's signing of a proclamation imposing a 25% tariff without exceptions on steel and aluminum products imported into the United States, and his announcement that tariffs on automobiles and semiconductors are also under consideration, containers have been piling up at Pyeongtaek Port in Gyeonggi Province as of the 13th.

CE cited the domestic political crisis that escalated into a state of emergency at the end of last year and the downturn in the real estate market as reasons for expecting South Korea's economic growth rate to be limited to 1.0% this year.

CE stated, "Due to this economic slowdown, the Bank of Korea is expected to cut the base interest rate by 1.00 percentage point this year," adding, "This is a larger cut than other analysts have predicted." It explained that the Bank of Korea will have no choice but to significantly lower the current interest rate of around 3.00% to 2.00% to stimulate the economy. Assuming a 0.25 percentage point cut each time, this implies four rate cuts this year.

Domestic growth forecasts have also been repeatedly revised downward this year. The Korea Development Institute (KDI) lowered its growth forecast from 2.0% to 1.6% on the 11th. The revised economic outlook to be announced by the Bank of Korea on the 25th is also expected to be significantly adjusted downward compared to the November forecast last year (1.9%). The Bank of Korea had previously predicted 1.6?1.7% in its mid-term review last month.

Morgan Stanley expects the Bank of Korea to present a growth rate close to 1.5% in its revised economic outlook. This is expected to be similar to Morgan Stanley's own forecast for South Korea's economic growth rate this year (1.5%). The interest rate cut cycle is also expected to continue down to around 2.00%. Morgan Stanley said, "Tariff pressures on exports are greater than expected, and persistent domestic demand weakness could ultimately push the rate down to 2.00% annually," adding, "(The interest rate cut cycle) could continue until 2026 depending on the timing and scale of fiscal stimulus measures."