英 CE "Korea's Growth Rate 0.9% This Year, Exchange Rate 1500 Won"...First Growth Rate Below 1% Expected

This year, a bleak forecast has emerged overseas for the first time, predicting that South Korea's real Gross Domestic Product (GDP) growth rate will fall below 1%.

Yonhap News

According to the International Financial Center on the 27th, the British research firm Capital Economics (CE) lowered South Korea's economic growth forecast for this year from 1.0% to 0.9% in a report released on the 26th (local time).

Recently, Barclays lowered its forecast from 1.6% to 1.4%, HSBC from 1.7% to 1.4%, and Standard & Poor's (S&P) from 2.0% to 1.2%, continuing a downward trend, with CE presenting the lowest estimate. CE stated, "Even if politics stabilize, the economy is expected to remain difficult," adding, "While interest rate cuts or exports may help, due to a slowdown in government spending, we forecast growth of 0.9%, which is lower than the market expectations for this year."

Additionally, CE expects South Korea's consumer price inflation rate this year to be 1.9%, below the policy authorities' target level of 2%. Accordingly, CE anticipates that the Bank of Korea will further cut the base interest rate by 0.75 percentage points from the current annual rate of 2.75% to 2.00% by the end of this year.

The won-dollar exchange rate, currently in the mid-1460 won range, is forecasted to rise to 1500 won by the end of this year. CE also expects it to remain around 1500 won through the end of next year and the year after. Furthermore, CE predicts that the KOSPI index will rise to 2900 by the end of this year but will sharply fall to around 2200 by the end of next year.

Earlier, in a report on the 21st, CE identified South Korea's political crisis as a major uncertainty factor, mentioning that "the impeachment trial of President Yoon Seok-yeol is the most noteworthy." CE explained, "If President Yoon's impeachment is dismissed, it could push South Korea further into political turmoil. However, if the impeachment is accepted as we expect, a new election must be held within 60 days."

It added, "There is a high possibility that the opposition Democratic Party candidate will win the presidential election," and "Considering that the Democratic Party already holds a majority in the National Assembly, this could lead to a return to more normal (less dysfunctional) politics and a recovery in consumer confidence."