Securities analysts have reported that the domestic economy is expected to pass its low point in the second half of this year and experience stronger growth momentum than initially anticipated. In particular, despite ongoing uncertainties surrounding the so-called 'Trump tariffs,' domestic exports are projected to improve in the third quarter compared to the previous quarter. Strong stimulus policies following the inauguration of the Lee Jaemyung administration have also been cited as positive factors that will further strengthen domestic growth momentum in the latter half of the year.
Park Sanghyun, a researcher at iM Securities, stated in his report "Who Is Affected by Tariffs?" released on July 14, "If mutual tariffs with the United States are resolved early, a rebound in domestic exports can be expected, and the strong stimulus policies implemented since the new administration took office will have a positive effect on domestic growth momentum in the second half of the year."
Park assessed, "It is possible that the domestic economy has passed its trough. While the extent of improvement in the growth rate may be limited, growth momentum in the second half of the year is likely to be stronger than initially expected." He cited several factors for this outlook: the effects of a large-scale second supplementary budget, recovery in consumer sentiment, a robust semiconductor industry, better-than-expected export performance, the impact of money moving into the stock market, and government-led momentum for artificial intelligence (AI) investment.
He explained, "The effect of money moving into the stock market, along with the rise of new growth industries, sends a positive signal to both the economy and the financial markets. The semiconductor industry cycle is also showing a more robust trend than previously feared." He added, "The domestic export sector has avoided the worst-case scenario initially feared due to mutual tariffs with the United States. Daily average export volumes are better than expected, and the trade surplus is expanding." Park also noted that negative factors originating from China, which have weighed on domestic exports and the economy, are now somewhat less intense.
In his report released that day, Park outlined eight key characteristics, stating, "Since the mutual tariff shock with the United States in early April, significant changes have been observed in global economic and financial market trends." Despite tariff uncertainties, he noted that the impact has so far been limited and highlighted the following: a strong liquidity rally, renewed AI cycle led by the United States, the growing importance of the stablecoin market, increased synchronization of global stock markets, a widening gap between economic cycles and stock prices in countries like Germany and Korea, stagnant economic performance in China despite stimulus efforts, and persistent fiscal risks in major advanced economies.
Park emphasized, "One of the biggest concerns is who is bearing the brunt of the tariff hikes." He explained, "Although the tariffs have not been fully implemented yet, the impact on U.S. households and businesses (manufacturers) has been minimal, while countries with a high proportion of exports to the United States are experiencing some negative effects." He identified China, Canada, and Vietnam as representative examples.
The global liquidity rally is expected to continue in the second half of the year. Park stated, "Liquidity conditions will remain favorable in the second half. The more stable inflation trend compared to earlier concerns is increasing the likelihood of a rate cut by the U.S. Federal Reserve in September. If tariff negotiations are concluded in July, the Fed could implement a 'big cut' (a 0.5 percentage point rate reduction) in September." He also pointed out that a Goldilocks exchange rate favorable to the economy and financial markets, as well as the expansion of the stablecoin market, will serve as driving forces behind the ongoing global liquidity rally.
However, Park noted that the Chinese economy remains stuck in a deflationary phase, making a strong recovery in domestic demand unlikely. From a risk perspective, he cautioned, "Fiscal risks (bond yield shocks) in the United States, Japan, and the United Kingdom should be closely monitored." He added, "In the case of the United States, attention should be paid to how the implementation of tax cuts will affect the fiscal deficit, and in Japan, whether ultra-long-term government bond yields will rise further should also be watched."
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