[Monetary Policy Board Poll] ② Korea's Growth Outlook Revised Upward... Real Estate Stability Key to Both Monetary Policy and Economic Recovery

Most experts forecast growth in the 1% range this year... 6 experts revise forecasts upward
Monetary policy stance shifts to caution...
From low growth and weak domestic demand to real estate and household debt concerns
Structural reform remains the top priority for economic recovery...
More mention of "real estate stability"

With the Bank of Korea's base rate decision scheduled for the 10th, the majority of domestic experts have revised this year's economic growth forecast for South Korea upward. Despite sluggish exports due to U.S. tariffs, the trade balance remains in surplus, and the second supplementary budget (extra budget) is expected to boost growth in the second half of the year beyond previous expectations. As concerns over economic stagnation have somewhat eased, monetary policy, including the base rate decision, is expected to focus more on financial stability than on economic recovery. However, experts still emphasize that structural reform should remain the top priority for economic recovery. Unlike in May, when the topic was barely mentioned, references to 'real estate stability' have also increased.

Most experts forecast growth in the 1% range this year... 6 experts revise forecasts upward

According to a survey conducted by Asia Economy from July 1 to 4 of 16 economic experts from domestic and international research institutes, securities firms, banks, and academia, 60% of respondents (9 people; 1 non-response) forecast South Korea's economic growth rate for this year to be in the 1% range. Specifically, 7 experts projected 1.0%, and 2 projected 1.1%. For those expecting growth below 1%, 2 experts each forecast 0.6%, 0.8%, and 0.9%. While growth remains low in the low 1% range, this is a more positive outlook compared to May, when 59.8% of experts forecast growth in the 0% range.

This shift is the result of 6 experts revising their growth forecasts upward. These experts cited less severe export sluggishness than expected and the effects of the second supplementary budget as reasons for expecting higher growth in the second half. Yoon Yeosam, a researcher at Meritz Securities, who raised his forecast from 0.8% to 1%, said, "The main reason for the upward revision is that exports in the second quarter were more resilient than expected," adding, "Taking into account the expansionary fiscal effect of the second supplementary budget, growth could rise by more than 0.2 percentage points."

Even economists at overseas investment banks (IBs), who tend to be more conservative than domestic institutions, have revised their growth forecasts upward. Park Seokgil, an economist at JP Morgan, who had forecast 0.5% in May, said, "The third-quarter forecast was revised upward to reflect the supplementary budget," and raised his annual growth forecast to 0.6%. Kang Minju, chief economist at ING Bank, also revised her forecast from 0.9% to 1.0%, explaining, "Despite sluggish exports due to U.S. tariffs, the trade surplus has improved compared to the previous quarter and is expected to drive economic rebound." She added, "The size of the supplementary budget was larger than expected, and the short-term consumption-boosting effect is strong, so growth in the second half is expected to be higher than initially forecast."

While most experts believe the upside factors for the Korean economy have increased, they also agree that a significant drop in growth compared to last year (2.0%) is inevitable due to continued export shocks from reciprocal tariffs and persistent sluggishness in construction investment (according to Heo Moonjong, head of Woori Financial Management Research Institute), despite policies to stimulate consumption. Kim Jinil, professor of economics at Korea University, cited domestic and external uncertainties as the reason for lowering his forecast to 0.6%, down from 0.9% in May.

Monetary policy stance shifts to caution... From low growth and weak domestic demand to real estate and household debt concerns

With the Bank of Korea's Monetary Policy Board expected to keep the base rate unchanged this month, there is growing consensus that future rate decisions will also be made cautiously. The overwhelming majority of experts identified 'real estate and household debt conditions' as the most important variable. Of the 15 respondents (multiple responses allowed), 14 cited financial stability, such as household debt, as the key concern. They believe that rising house prices and the resulting increase in household debt will have the greatest impact on rate decisions, which in turn acts as a deterrent to lowering rates.

The next most frequently cited factor was the timing of U.S. rate cuts (5 experts). The widening interest rate gap between South Korea and the U.S. is also seen as a reason to hold rates steady. Low growth and sluggish domestic demand, both factors supporting rate cuts, were cited by 3 experts each. This contrasts with May, when most experts focused on U.S. trade policy responses (10 experts), low economic growth (9 experts), and weak domestic demand (6 experts).

Yoon Yeosam, a researcher, said, "While the possibility of further rate cuts remains due to persistently weak growth around 1%, growing concerns about rising real estate prices in the Seoul metropolitan area and increasing household debt mean that fiscal policy will play a central role in economic improvement, and monetary policy will increasingly focus on financial stability." However, Gong Dongrak, a researcher at Daishin Securities, said, "Financial stability can influence the timing of rate decisions, but the main variable remains the burden of low growth."

Structural reform remains the top priority for economic recovery... More mention of 'real estate stability'

Experts continue to emphasize the need to address structural limitations, such as fostering new growth industries, for South Korea's economic recovery. Of the 13 experts who responded to this question (multiple responses allowed), 6 cited this as the top priority. This suggests that the new administration should not focus solely on short-term economic responses. Moon Hongchul, a researcher at DB Securities, said, "There are many structural factors behind low growth, so piecemeal policy responses will likely have significant side effects." Kang Minju, chief economist, also said, "While short-term consumption recovery is a key target, providing incentives for new growth engines and promoting investment should be prioritized," adding, "Structural issues such as population aging and productivity improvement also need to be addressed." Many experts also cited short-term domestic demand recovery (5 experts) as a priority.

There was also a significant number of experts (3) who said that 'real estate stability' should be a top priority. Park Jungwoo, an economist, said, "Stabilizing the real estate market must be the highest priority," adding, "While expectations for price increases may be tempered somewhat by tighter lending regulations, if gap-filling transactions occur in homes priced under 1 billion won, the government's real estate stabilization policy could be undermined." Ahn Yeha, a researcher at Kiwoom Securities, also pointed out, "It is necessary to ease the phenomenon of liquidity being concentrated in real estate."

For additional measures to stabilize the real estate market and household debt, 7 out of 12 respondents said that policies to expand housing supply are necessary. Yoon Yeosam, a researcher, said, "Since financial stability is already being pursued through stricter lending regulations, it is time to seek balance through increased supply rather than demand suppression." In addition to building more homes, some suggested that tax reforms are needed to increase supply. Park Jungwoo, an economist, said, "Increasing supply requires not only new construction but also sales by existing homeowners," emphasizing, "To stimulate transactions, acquisition taxes should be permanently exempted, and the tax brackets for earned income, capital gains, and inheritance taxes should be rationally adjusted to increase benefits for earned income." He added, "Conversely, property taxes and comprehensive real estate taxes should be normalized according to clear standards."

There were also calls (5 experts) for further strengthening household loan regulations. Kim Seongsu, a researcher at Hanwha Investment & Securities, said, "Given the high proportion of real estate in household assets and demand for real estate in Seoul, there is no other option but additional or prolonged regulations." Ahn Jaegyun, a researcher at Shinhan Investment & Securities, said, "The government should maintain its lending regulation stance and also adjust the pace of base rate cuts." There were also suggestions (3 experts) to foster alternative investment vehicles such as the capital market.

Some pointed out that policy responses aimed at stabilizing the real estate market could actually destabilize house prices. Moon Hongchul, a researcher, said, "Policy responses to the real estate market can actually cause sharp price swings," adding, "While taxes and regulations should be left to market forces and supply should be expanded, we cannot ignore the possibility that reality could move in the opposite direction." Kang Minju, chief economist, pointed out, "As we have seen in the past, demand suppression policies for real estate are unlikely to provide a fundamental solution and will only serve as a short-term fix."

Experts who participated in the survey (in alphabetical order)

Kang Minju, chief economist at ING Bank; Kang Seungwon, researcher at NH Investment & Securities; Gong Dongrak, researcher at Daishin Securities; Kim Seongsu, researcher at Hanwha Investment & Securities; Kim Jinil, professor of economics at Korea University; Moon Hongchul, researcher at DB Securities; Park Sanghyun, researcher at iM Securities; Park Seokgil, economist at JP Morgan; Park Jungwoo, economist at Nomura Securities; Baek Yunmin, researcher at Kyobo Securities; Ahn Yeha, researcher at Kiwoom Securities; Ahn Jaegyun, researcher at Shinhan Investment & Securities; Yoon Yeosam, researcher at Meritz Securities; Jeong Seongtae, researcher at Samsung Securities; Cho Youngmoo, head of NH Financial Research Institute; Heo Moonjong, head of Woori Financial Management Research Institute