[Monetary Policy Poll]② "Domestic Demand and Exports Stronger Than Expected... BOK Likely to Raise Growth Forecast"

Most Experts Expect 1.0% Growth Rate This Year
80% Say BOK Will Raise Its Forecast
Key Rate Decision Variables: Growth Recovery and Financial Stability
"Government Policy Must Be Consistent"

Ahead of the Bank of Korea's base interest rate decision and economic outlook announcement on the 28th, the majority of domestic experts expect the Bank of Korea to raise its forecast for South Korea's economic growth rate this year by 0.1 to 0.2 percentage points. This is due to the recovery in domestic demand driven by the supplementary budget, as well as exports remaining more resilient than expected despite U.S. tariffs. However, with low growth around 1.0% still expected, many experts emphasized that fiscal and tax support for export companies and innovative industries is necessary to drive economic recovery.

Most Experts See 1.0% Growth Rate This Year... 80% Expect the Bank of Korea to Raise Its Forecast

According to a survey conducted by Asia Economy from August 19 to 22 of 14 economic experts from domestic and international think tanks, securities firms, and banks, 9 experts (82%, with 3 non-responses) predicted that the Bank of Korea would raise its growth rate forecast for South Korea in its August economic outlook. Specifically, 6 predicted 0.9%, and 3 predicted 1.0%. Two respondents expected the Bank to maintain its previous forecast of 0.8%. No experts expected a downward revision.

In May, the Bank of Korea had sharply lowered its growth forecast for this year from 1.5% to 0.8%, reflecting the shock of a negative 0.2% growth in the first quarter and simultaneous sluggishness in domestic demand and exports at the time. However, since then, the export downturn has proven less severe than anticipated, and with the second supplementary budget, domestic demand has gradually recovered, prompting experts to begin revising their growth forecasts upward since last month. The Bank of Korea is expected to follow this trend.

Park Jungwoo, economist at Nomura Securities, said, "Exports are more resilient than expected, and consumption may recover in the second half," predicting the Bank of Korea would raise its growth forecast to 0.9%. Yoon Yeosam, researcher at Meritz Securities, also anticipated an upward revision, saying, "Exports have remained strong through August, and the fiscal stimulus from the supplementary budget is likely to improve domestic demand in the third quarter." However, he noted, "Construction investment remains weak, and the tariff agreement was set at a higher-than-expected 15%, making a 1.0% upward revision unlikely."

Moon Hongchul, researcher at DB Securities, who expects the Bank of Korea to maintain its 0.8% forecast, said, "The government's supplementary budget will likely boost the growth rate by about 0.1 to 0.2 percentage points, but the tariffs will offset most of this, resulting in little overall change." Among the experts' own forecasts, 1.0% was the most common, with 4 experts selecting it. Three each predicted 0.8% and 0.9%, while two predicted 1.1%. Kang Minju, chief economist at ING Bank, raised her growth forecast for this year to 1.2%. She said, "Private consumption growth in the third quarter is expected to be quite robust," and she also predicted, "Net exports will make a small but positive contribution to growth due to the tariff agreement and falling international oil prices."

For this year's inflation rate, 7 experts predicted 2.0%, making it the most common response. Three predicted 1.9%, suggesting that most experts expect the rate to align with the Bank of Korea's forecast of 1.9%. Park Sanghyun, researcher at iM Securities, said, "Prices of agricultural and marine products temporarily increased inflationary pressure due to severe cold and heavy rain, but with stabilization in oil and other commodity prices, inflation will converge to the Bank's forecast." Cho Youngmoo, head of NH Financial Research Institute, commented, "Although the inflation rate is gradually declining, it will be difficult to settle in the 1% range," adding, "Cumulative inflationary pressure remains high, and public utility rate hikes are another variable."

Key Variables for Rate Decisions: Growth Recovery and Financial Stability... "Government Policy Must Remain Consistent"

While the consensus is that the base interest rate will remain unchanged this month, most experts cited growth recovery, household debt, and the impact of tariffs as the biggest variables influencing the Bank of Korea's future rate decisions. Of the 13 respondents, 9 (multiple responses allowed) cited growth recovery, which is a factor for lowering rates. However, household debt-a key reason for maintaining the current rate-was mentioned by 8 experts. The impact of tariffs (6 experts) and U.S. monetary policy (4 experts) followed. Most experts pointed to both growth recovery and household debt as the main variables. This suggests that the Bank of Korea is expected to strike a balance between growth recovery and financial stability in its rate decisions. Kang Seungwon, researcher at NH Investment & Securities, predicted, "While real estate is the main concern for now, the focus could shift back to economic recovery in the fourth quarter." Economist Park Jungwoo said, "For now, the Bank will maintain a monetary policy stance that balances financial stability and growth recovery."

With the domestic economy still expected to grow at a low rate of around 1.0%, the strongest consensus among experts was that the government should provide fiscal support for export companies and innovative industries to aid economic recovery. There were also calls for consistent policies to stimulate capital markets and regulatory reform to eliminate anti-business sentiment.

When asked which policy the government should prioritize to support economic recovery, 6 experts (multiple responses allowed) chose "corporate and industrial support through fiscal spending." Ahn Jaekyun, researcher at Korea Investment & Securities, said, "With signs of domestic demand recovery due to the payment of livelihood support funds, it is time for the government to plan spending for industrial restructuring and responses to the construction market." Researcher Yoon Yeosam also said, "Fiscal policies such as funds to support innovative industries are necessary." Huh Moonjong, director at Woori Financial Management Research Institute, pointed out, "A supplementary budget is needed to strengthen the construction market and support export companies."

Three experts cited the need for active regulatory easing. Chief economist Kang Minju stressed, "The focus should be on boosting investment rather than short-term consumption stimulus policies," adding, "It is necessary to expand incentives for corporate research and to review regulations related to artificial intelligence (AI) and new industries." Researcher Moon Hongchul commented, "The government should prioritize regulatory reform and the elimination of anti-business sentiment."

Three experts also emphasized the need for policy consistency regarding capital markets and companies. This reflects concerns about anti-business tax policies included in the government's tax reform plan. Director Cho Youngmoo said, "Swift and effective fiscal policies are needed to ease concerns about tax increases." Economist Park Jungwoo also said, "To revive consumption, it is necessary to stabilize the real estate market and consistently push forward policies to stimulate the capital market." Baek Yoonmin, researcher at Kyobo Securities, pointed out, "Policy consistency is needed to restore economic sentiment."

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; 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 Yoonmin, researcher at Kyobo Securities; Ahn Jaekyun, researcher at Korea Investment & Securities; Yoon Yeosam, researcher at Meritz Securities; Jeong Seongtae, researcher at Samsung Securities; Cho Youngmoo, head of NH Financial Research Institute; Huh Moonjong, director at Woori Financial Management Research Institute