[Geumtongwi poll] ② This Year's Growth Rate Expected at 0% Range... "US Must Speed Up Tariff Negotiations"

Most Experts Forecast Growth in the 0% Range if Tariff Shock Persists
Main Variables for Bank of Korea's Monetary Policy: Exchange Rates, Tariffs, and Low Growth
For Economic Recovery: "Early Tariff Negotiations and Aggressive Fiscal Expansion"

Ahead of the Bank of Korea's base interest rate decision on the 17th, the majority of domestic experts have lowered their forecasts for South Korea's economic growth rate this year. Some experts even predicted growth in the 0% range. They viewed the stronger-than-expected tariff war amid domestic demand stagnation as a factor that would pull the country's growth rate down further than initially projected. The three key factors?tariff risks, exchange rates, and low growth?are expected to influence the Bank of Korea's future interest rate decisions. Many opinions emphasized the need for prompt tariff negotiations with the United States, along with proactive fiscal and monetary policies that involve injecting liquidity and lowering interest rates.

Most Forecast Growth Between 0% and Early 1% This Year: "Tariff Measures Stronger Than Expected"

On the 14th, Asia Economy conducted a survey from the 8th to the 11th among 12 economic experts from domestic and international economic research institutes, securities firms, and banks. The results showed that 70% of respondents forecast South Korea's economic growth rate this year to be in the high 0% to low 1% range. Specifically, two respondents predicted 0.8%, two predicted 1.2%, and one predicted 0.7%. This is even lower than the 1.5% forecast lowered by the Bank of Korea in February.

Three respondents anticipated ultra-low growth in the 0% range. Park Seok-gil, an economist at JP Morgan who gave the lowest forecast of 0.7%, said, "The tariff war is more intense than expected," adding, "As a result, a recession in the U.S. is expected in the second half of the year, which will also lower South Korea's economic growth rate."

Most experts cited ongoing domestic demand weakness and delayed fiscal responses such as supplementary budgets as reasons for the decline in growth rates. Moon Hong-chul, a researcher at DB Securities who forecasted early 1% growth, said, "The tariff war is a major risk factor for growth decline amid domestic demand stagnation," adding, "Political uncertainty is also a factor contributing to the growth decline."

Kang Min-joo, senior economist at ING Bank, who lowered her forecast from 1.1% in February to 0.8% this time, said, "Despite the 90-day tariff freeze, the front-loading effect in the first quarter (where companies stockpile more than necessary in anticipation of future tariff hikes) combined with domestic demand weakness is expected to cause growth to slow significantly from the second quarter onward." She added, "Negative downward factors such as wildfires have increased, and fiscal policies like supplementary budgets have been delayed, which will pull this year's growth rate below 1%."

Two respondents forecasted 1.5% growth this year. However, even they predicted a sharper decline next year or based their forecasts on the assumption of supplementary budget effects. Ahn Jae-gyun, a researcher at Shinhan Investment Corp., said, "The actual export downturn caused by stronger-than-expected tariff measures and concerns over prolonged tariffs is expected to appear from the second half of this year," adding, "The decline in next year's growth forecast will be even greater." Yoon Yeo-sam, a researcher at Meritz Securities, said, "If the tariff shock continues to be felt, the growth rate could fall to around 1%."

Main Variables for Bank of Korea's Monetary Policy: Exchange Rates, Tariffs, Domestic Demand Weakness, and Low Growth

With the Bank of Korea's Monetary Policy Committee expected to keep the base interest rate unchanged this month, many experts identified exchange rates, tariff risks, domestic demand weakness, and low growth as the biggest variables influencing future interest rate decisions. Among 11 respondents, 7 (multiple answers allowed) pointed to exchange rates, followed by tariff risks (6) and domestic demand weakness and low growth (6). Experts viewed these three factors as organically intertwined, collectively impacting the Bank of Korea's base interest rate decisions.

Senior economist Kang Min-joo predicted, "The Bank of Korea will likely deliberate on where to place emphasis between exchange rates and domestic demand weakness." Typically, when domestic demand weakens due to factors like inflation, a base interest rate cut is considered. However, lowering the base rate can also depreciate the Korean won, fueling a rise in the won-dollar exchange rate. The Bank of Korea's Monetary Policy Committee members may face a dilemma between trying to stimulate domestic demand to prevent downward economic pressure and the economic slowdown caused by a high exchange rate.

The impact of the U.S.-originated tariff list on the Korean economy is also expected to be a key factor. Researcher Yoon Yeo-sam stated, "The risk to the economy from Trump's tariff imposition and its potential impact on the global economy and U.S. monetary policy make this the most important factor." Other experts mentioned household debt (3), the presence and scale of supplementary budgets (2), the timing of U.S. interest rate cuts (2), and real estate prices (1) as factors that will influence future interest rate decisions.

To Revive the Economy, Swift Conclusion of U.S. Tariff Negotiations Needed... "Supplementary Budgets Also Urgent"

Most respondents agreed that to revive the domestic economy, tariff negotiations with the United States must be concluded as soon as possible. Many also believed that fiscal responses such as supplementary budgets are more urgent than monetary policies like interest rate cuts.

Four experts (multiple answers allowed) identified early tariff negotiations with the U.S. as the most urgent step for economic recovery. This implies that during the 90-day tariff suspension period, the government should work to reduce the scale of tariff impositions or minimize damage to domestic companies. Economist Park Seok-gil emphasized, "Tariff negotiations must be concluded as quickly as possible." Kim Seong-su, a researcher at Hanwha Investment & Securities, also said, "Active negotiation efforts with the U.S. are necessary."

Four experts also advocated for aggressive fiscal and monetary policies that involve lowering interest rates and increasing fiscal spending. Researcher Park Sang-hyun at iM Securities said, "Along with early tariff negotiations with the U.S., aggressive fiscal and monetary policies to stimulate the economy are the most urgent tasks." Some opinions placed more weight on fiscal responses than monetary policy. Researcher Yoon Yeo-sam emphasized, "Direct fiscal policy responses to stimulate the economy, like those in Europe and China, are more urgent." Ahn Jae-gyun of Shinhan Investment Corp. also said, "While increasing government spending for industrial restructuring, it is necessary to restructure spending in other areas."

There were also opinions that support is needed for industries that may be harmed by the new U.S. administration's policies. Kang Seung-won, a researcher at NH Investment & Securities, said, "Along with interest rate cuts, industry support aligned with the Trump administration's policies should be implemented." Researcher Cho Young-moo of LG Economic Research Institute stated, "Accurate situational awareness must precede any action."