[Monetary Policy Poll] ② "Growth Rate to Stay in 0% Range This Year... New Government Should Prioritize Structural Reform and Fiscal Expansion"

Asia Economy Survey of 17 Experts
10 Out of 17 Say "Growth Above 1% Is Unlikely This Year"
Korean Economy Hindered by Weak Domestic Demand, Tariff Shocks, and Low Growth
"New Government Should Shift Focus from Monetary to Fiscal Policy"
"Paradigm Shift in Economy as Important as Tariff Response," Most Experts Say

With the Bank of Korea’s base rate decision and economic outlook announcement scheduled for the 29th, the majority of domestic experts forecast that South Korea’s economic growth rate will remain in the 0% range this year. The highest projection was 1.1%, which is lower than the 1.5% forecast by the Bank of Korea in February. Experts cited a slowdown in trade due to tariff shocks, a slower-than-expected recovery in domestic demand, and the resulting economic stagnation as factors that will weigh on the Korean economy. Many believe that the new government, set to launch next month, should prioritize three policy keywords for economic recovery: structural reform, fiscal expansion, and tariff response.

Most expect growth of 0.7~0.9% this year... Will the Bank of Korea also lower its forecast to the 0% range?

According to a survey conducted by Asia Economy from May 20 to 23 with 17 economic experts from domestic and international research institutes, securities firms, banks, and academia, 59.8% (10 respondents) projected South Korea’s economic growth rate this year to be in the 0% range. Specifically, 0.8% was the most common response (4 experts), followed by 0.7% (2 experts), 0.9% (2 experts), and 0.5% and 0.6% (1 expert each). Including those who answered “the likelihood of entering the 0% range is increasing” or “below 1%,” the proportion forecasting the 0% range rises to 71%.

Five respondents expected growth just above 1%. However, even among these, the highest projection was 1.1%. More specifically, 3 experts forecast 1.0%, and 2 forecast 1.1%. All respondents believed this year’s growth rate would remain in the high 0% or low 1% range. Considering that last year’s GDP growth was 2.0%, this points to a sharp economic slowdown. The Bank of Korea’s forecast in February was 1.5%, but experts now expect a significant downward revision in the upcoming outlook.

Experts diagnosed that there is no sector?exports, consumption, or investment?capable of supporting economic growth. Heo Moonjong, head of Woori Financial Management Research Institute, said, “The pace of domestic demand recovery is slower than expected, and external uncertainty caused by the U.S. Trump administration’s tariff policies persists,” predicting that the Korean economy will grow only 0.8% this year. Baek Yoonmin, a researcher at Kyobo Securities, predicted that the Bank of Korea would forecast 0.8%, saying, “While there are valid expectations for a domestic demand recovery in the fourth quarter, the pace will not be fast, and exports will act as a downward pressure, so the extent of recovery will be limited.”

The fact that the Korean economy contracted by -0.2% in the first quarter of this year is another reason for the lowered annual growth forecast. Kang Minjoo, chief economist at ING Bank, lowered her forecast from 0.8% last month to 0.6% this month, stating, “Even if U.S. tariffs are reduced from current levels, they will still negatively affect exports,” and “Weak demand due to a slowdown in U.S. consumption will also be a marginal factor for export growth.” Experts also pointed to sluggish construction and domestic political uncertainty as factors that could further dampen the economy.

For this year’s inflation rate, 5 experts forecast 2.0%, the largest group, followed by 4 experts projecting 1.9%. Most experts expect inflation to align with the Bank of Korea’s forecast (1.9%). However, 4 respondents predicted 1.7~1.8%, which would be lower than the central bank’s outlook. Despite upward pressure from tariff policies, weak consumption is expected to pull inflation down. Conversely, 2 experts projected inflation could rise as high as 2.2%. An Yeha, a researcher at Kiwoom Securities, said, “Considering the inflationary pressure from tariff policies, there could be a slight upward revision.”

Will the Bank of Korea cut rates further? Key variables: tariffs, low growth, weak domestic demand

With the Bank of Korea’s Monetary Policy Board expected to cut the base rate once more this month, many experts identified tariff risks, low growth, and weak domestic demand as the biggest variables that will influence future rate decisions. Of the 14 respondents, 10 (multiple responses allowed) cited the U.S. trade policy response. Low economic growth was cited by 9 experts, followed by weak domestic demand (6 experts) and household debt (6 experts). Most experts pointed to tariff risks, weak domestic demand, and low growth simultaneously. “Exchange rate,” which was the top variable in the previous survey, was cited by only 3 experts this time.

Experts believe the focus of the Bank of Korea’s monetary policy will shift toward easing downward economic pressure to stimulate domestic demand, in other words, responding to low growth. Export sluggishness due to tariff risks, worsening construction sector conditions, and weak consumption leading to sluggish domestic demand?all of these are seen as factors supporting a base rate cut. In contrast, household debt and the exchange rate are factors that could make the Bank of Korea hesitate to lower rates. Park Jungwoo, economist at Nomura Securities, said, “The level of interest rates will be most affected by economic sluggishness, but the pace of rate cuts will be influenced by household debt and the exchange rate.”

Some argue that even as the focus shifts to responding to low growth, the Bank of Korea must also balance the real estate market and financial stability. Moon Hongchul, a researcher at DB Financial Investment, said, “The priority for monetary policy will be stimulating domestic demand, followed by the exchange rate, financial stability, and then Gangnam real estate prices.” Yoon Yeosam, a researcher at Meritz Securities, said, “While the immediate issue is the slowdown in growth, there is a growing risk that a rate cut could trigger financial instability in real estate and virtual assets rather than stimulate the economy,” adding, “The Bank of Korea is likely to lower rates for current issues, but must also maintain balance with financial stability.”

Advice for the new government: “Start with industrial structural reform, U.S. tariff response, and fiscal expansion”

Many experts said that for Korea’s economic recovery, the new government must pursue industrial structural reform as well as respond to U.S.-imposed tariffs and expand fiscal spending. A majority also argued that the policy focus should shift from monetary easing, such as base rate cuts, to greater fiscal expansion.

Five experts (multiple responses allowed) cited a shift in economic and industrial paradigms as a top priority for the new government’s economic recovery efforts. This suggests that the new administration’s policy direction should not be limited to short-term economic responses. Kim Jinil, professor of economics at Korea University, emphasized, “It is crucial to secure momentum to reverse the economic downturn.” An Jaegyun, a researcher at Shinhan Investment Corp., added, “It is necessary to implement policies to foster new industries such as artificial intelligence (AI) and provide financial support for restructuring existing industries.” Kang Minjoo, chief economist, said, “Policies to promote investment in new technologies are needed.”

There was also consensus that not only fostering new industries but also industrial restructuring is necessary. Park Jungwoo, economist, said, “Structural reform should take precedence over short-term economic recovery,” adding, “It is necessary to gradually reduce policy finance supply for real estate stabilization.” He continued, “Industrial restructuring is also needed in sectors such as chemicals.” Yoon Yeosam, researcher, said, “Support for industries undergoing restructuring is needed to mitigate Korea’s structural growth risks.”

Five experts also responded that fiscal expansion should be pursued actively, including through a supplementary budget. Cho Youngmoo, research fellow at LG Economic Research Institute, said, “The focus of policy response should shift from monetary to fiscal policy,” adding, “While the scale and timing are important, the content aimed at expanding mid- to long-term growth potential is even more crucial.” On the other hand, Kang Seungwon, a researcher at NH Investment & Securities, said regarding the direction of fiscal spending, “Fiscal expenditure should be expanded in areas with high multiplier effects, such as social overhead capital (SOC).”

Five experts also said that responding to U.S.-imposed tariffs is necessary. Yoon Yeosam, researcher, said, “Externally, it is necessary to control downside economic risks through tariff negotiations with the U.S.” Heo Moonjong, head of the research center, also added, “It is necessary to reach an agreement on tariff negotiations with the U.S.”

Experts who participated in the survey (in alphabetical order)

Kang Minjoo, chief economist at ING Bank; Kang Seungwon, researcher at NH Investment & Securities; Gong Dongrak, researcher at Daishin Securities; Kim Sanghoon, researcher at Hana Securities; Kim Seongsu, researcher at Hanwha Investment & Securities; Kim Jinil, professor of economics at Korea University; Moon Hongchul, researcher at DB Financial Investment; Park Sanghyeon, researcher at iM Securities; Park Seokgil, economist at JP Morgan; Park Jungwoo, economist at Nomura Securities; Baek Yoonmin, researcher at Kyobo Securities; An Yeha, researcher at Kiwoom Securities; An Jaegyun, researcher at Shinhan Investment Corp.; Yoon Yeosam, researcher at Meritz Securities; Jeong Seongtae, researcher at Samsung Securities; Cho Youngmoo, research fellow at LG Economic Research Institute; Heo Moonjong, head of Woori Financial Management Research Institute