[Monetary Policy Poll]② Real Estate Emerges as the Top Variable for Rate Decisions ... "2% Growth Possible for Korea Next Year"

Survey of 15 Experts by Asia Economy
Korea’s Growth Rate Projected Higher Than Bank of Korea’s Forecast for Both This Year and Next
Biggest Variable for Rate Decisions: "Metropolitan Area Housing Prices and Household Debt"
"Need to Strength

Ahead of the Bank of Korea's key interest rate decision on the 23rd, the majority of domestic experts forecast that South Korea's economic growth rate for this year and next year will be higher than the Bank of Korea's projections. Despite downside risks stemming from the Korea-US tariff negotiations, experts believe that robust semiconductor exports will help shield the economy from low growth. As concerns over economic stagnation have slightly eased, the focus of monetary policy, including the base rate, is expected to shift toward financial stability. Experts unanimously pointed to real estate prices and household debt as the most significant variables influencing rate decisions. They also suggested that to stabilize the real estate market, the government should send stronger signals about expanding supply.

Most Expect Growth in the 1% Range This Year ... 90% of Experts Forecast "At Least 1.7% Next Year"

According to a survey conducted by The Asia Business Daily from October 14 to 17 with 15 economic experts from domestic and international economic research institutes, securities firms, banks, and academia, 63% of respondents (7 people; 4 did not respond) projected South Korea's economic growth rate for this year to be in the 1% range. Specifically, six experts forecast 1.0%, the most common response, while one predicted 1.2%. Four experts projected 0.9%, which matches the Bank of Korea's forecast from August.

For next year, experts expect a more significant increase in the growth rate. 91% of respondents (10 people) predicted a higher rate than the Bank of Korea's forecast of 1.6%. Breaking it down, four experts forecast 1.8%, three projected 1.7%, and one predicted 1.9%. There were also respondents who anticipated growth in the 2% range, with one each forecasting 2.0% and 2.2%. No respondents projected a lower rate than the Bank of Korea. The majority expect the growth rate to bottom out this year and recover next year.

Experts cited the strong performance of the semiconductor sector, despite concerns about a slowdown in exports due to US tariff hikes, and noted that next year's expansionary fiscal stance would further boost growth. Park Sanghyun, a researcher at iM Securities, said, "Despite the effects of the supplementary budget and stronger-than-expected exports, delayed domestic recovery due to sluggish construction investment will likely keep this year's growth at around 1%. Next year, thanks to the base effect and the semiconductor supercycle, robust exports and a domestic recovery could push growth to the upper 1% range." Yoon Yeosam, a researcher at Meritz Securities who forecast 2.0% growth for next year, said, "Despite challenges such as the Korea-US tariff negotiations, export performance remains solid. Next year, the effects of expansionary fiscal policies like the National Growth Fund will further enhance growth potential."

Even economists at international investment banks, who typically offer more conservative forecasts than domestic institutions, assessed Korea's growth outlook for next year positively. Park Seokgil, an economist at JP Morgan who gave the highest forecast of 2.2%, said, "Export performance this year has been stronger than expected since early April, and growth is expected to continue recovering next year. Given this year's low base, growth could exceed 2%." Kang Minju, chief economist at ING Bank, who forecast 1.8% for next year, said, "Growth is expected to accelerate significantly from the third quarter of this year. Policies to stimulate consumption and rallies in the domestic asset market will drive private consumption growth, while weak international oil prices and the semiconductor boom will also have a positive impact on growth."

However, experts warned that downside risks remain, including the outcome of tariff negotiations with the US, a slowdown in US consumer demand, and sluggish domestic construction activity. Moon Hongchul, a researcher at DB Securities, said, "There are concerns that Korea's export-driven economy could face difficulties due to protectionist policies, and domestic demand will also be weak due to the worsening construction sector." Kang, the chief economist, added, "The government's recent real estate suppression policies could negatively affect growth in the fourth quarter of this year and the first half of next year in the short term."

Top Variable in Rate Decisions: 'Real Estate' ... "Need to Strengthen Supply Expansion Signals"

While the consensus is that the base rate will remain unchanged this month, experts unanimously judged that real estate will become the most significant variable in the Bank of Korea's future monetary policy decisions. All 13 respondents (2 did not respond; multiple answers allowed) cited "Seoul metropolitan area housing prices and household debt" as the top variable. Five experts singled out "real estate prices" alone. This suggests that both the increase in household debt and trends in housing prices are now seen as having a greater impact on monetary policy than in the past.

The second most cited variable was the exchange rate (9 respondents), followed by Korea-US trade negotiations (4 respondents). Only three experts mentioned defending against low economic growth as a factor for rate cuts, a notable decrease from nine in the August survey. The prominence of housing prices, household debt, and the exchange rate as reasons for hesitating to cut rates suggests that the Bank of Korea's rate decisions may remain somewhat conservative going forward.

Many experts believe that to stabilize the real estate market-which has the greatest influence on rate decisions-emphasis should be placed on expanding supply. Six out of ten respondents said that signals to expand supply should be strengthened, or that both demand-suppression and supply-expansion measures should be pursued together. Baek Yunmin, a researcher at Kyobo Securities, said, "Ultimately, effective supply policies must accompany efforts to moderate the pace of household debt growth. Sufficient supply policies can temporarily defer housing demand or purchasing sentiment in the short term, and stabilize prices in the mid-term by balancing supply and demand."

Some called for stronger regulations through tax reforms such as property holding taxes. Park Jungwoo, an economist at Nomura Securities, said, "The most urgent task is to curb expectations of rate cuts," but also pointed out, "Taxation should be based on the scale of housing assets held, not the number of homes, and excessive capital gains tax benefits should be reduced. Overall, tax policy needs to be reformed." He also proposed a political solution to increase policy credibility, suggesting that the presidential office, senior officials, and ruling party lawmakers should take the lead in selling their homes.

There were also calls for a policy mix with monetary policy. Ahn Jaegyun, a researcher at Korea Investment & Securities, said, "With the government's real estate regulations focusing on expanding regulated areas and strengthening demand-suppression measures, it is time for the Bank of Korea to maintain a neutral monetary policy by keeping the base rate unchanged."

As the government is expected to maintain an expansionary fiscal stance next year, many experts believe that investment in new growth engines must be expanded to achieve an economic rebound within three years. Six out of twelve respondents (multiple answers allowed) cited this as a priority. This was followed by export improvement and support for export companies (three respondents each), and structural reform (three respondents). However, experts also stressed the need to find ways to ease the fiscal burden and enhance effectiveness, warning against undermining fiscal soundness. Ahn Yeha, a researcher at Kiwoom Securities, said, "Policies that create growth engines such as artificial intelligence (AI) and social overhead capital (SOC) are needed to alleviate the rising fiscal burden." Cho Youngmoo, head of NH Financial Research Institute, pointed out, "It is necessary to expand investment in new types of SOC." Park Jungwoo, the economist, emphasized, "As a minimum safeguard, fiscal rules should be reviewed and legislated."

Experts Participating 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 Korea Investment & Securities; Yoon Yeosam, Researcher at Meritz Securities; Cho Youngmoo, Head of NH Financial Research Institute; Heo Moonjong, Head of Woori Financial Management Research Institute