iM: "Korea's Growth Rate Expected at 1.8% Next Year... Global Economy to See L-Shaped Slow Pace"

iM Securities forecasts that South Korea's gross domestic product (GDP) growth rate in 2026 will reach around 1.8%, representing an improvement compared to this year's expected growth rate in the 1% range. The global economy is projected to maintain a level similar to this year, exhibiting what is known as an 'L-shaped' economic trend.

Yonhap News Agency

Park Sanghyun, a researcher at iM Securities, stated this in the report "2026 Economic Outlook: Three Pillars," released on the 27th, identifying three key factors that will shape the global economy and financial markets next year: the continued US-China hegemonic rivalry, the strengthening of the US-led artificial intelligence (AI) ecosystem, and asset market rallies, including overheating and fiscal risks.

First, Park noted, "The global economy will continue a slow-paced economic cycle next year," and predicted, "Due to the ongoing US-China power struggle, the slow recovery of global trade cycles, China's low growth, and various forms of polarization, the growth rate in 2025 will be similar to that of this year." Previously, the International Monetary Fund (IMF) projected global economic growth rates of 3.2% for this year and 3.1% for next year. The growth rates for the United States and the Eurozone were estimated at 2.0% and 1.2% this year, and 2.1% and 1.1% next year, respectively.

He observed, "With the intensifying AI supremacy race, both the United States and China may increase overlapping investments to build independent AI supply chains (ecosystems)," adding, "This will enhance the sustainability of the AI investment cycle." The AI investment cycle is expected to remain a major growth driver for the global economy in 2026 as well.

Regarding the asset price rally, Park stated, "The global liquidity expansion trend is likely to continue in 2026," but also pointed out, "At the same time, warnings about overheating in asset markets will grow louder." He added, "Considering the AI investment cycle and the US midterm elections, the likelihood of a crisis similar to the dot-com bubble recurring is low, but there remains a latent risk of increased volatility." He also noted, "Fiscal risks in major economies are increasingly likely to trigger bond yield spikes." Additionally, he mentioned that the US Federal Reserve might consider policies such as Japan's past yield curve control (YCC) or a mini-quantitative easing to manage long-term Treasury yields.

For South Korea, the growth rate next year is estimated to be around 1.8%. Park assessed, "The economy will shift from a turtle's pace to a slow but steady recovery," and evaluated that "the domestic cycle has passed its bottom." He explained, "Easing tariff uncertainties and the moderate growth of major economies will positively affect Korea's export sector," and particularly, "With the semiconductor supercycle expected to continue into 2026, robust semiconductor exports could lead to expanded investment in related industries."

He further explained that the so-called "three lows"-low interest rates, a weak dollar, and low oil prices-combined with the semiconductor supercycle as an alpha factor, will significantly contribute to the domestic economic recovery trend. The 150 trillion won National Growth Fund, promoted by the Lee Jaemyung administration, is also expected to have a positive effect on boosting the growth rate if implemented without setbacks.

On a quarterly basis, the growth rates are projected to be 2.7% in the first quarter, 2.2% in the second quarter, 1.1% in the third quarter, and 1.2% in the fourth quarter, indicating a high-to-low trend over the year. iM Securities has set this year's growth forecast for South Korea at 1%.

However, Park also pointed out that, given structural vulnerabilities such as an aging population, high household debt, and polarization, the momentum for domestic demand recovery in Korea may not be strong next year. He stated, "The overheating of housing prices in the Seoul metropolitan area, centered on Seoul, could delay the timing of interest rate cuts, which is likely to negatively impact the recovery of consumer demand." He also identified China's low growth and industry-specific polarization as additional risks to watch.

In addition, the domestic economic recovery trend, along with expectations of a weaker dollar, is anticipated to exert upward pressure on the Korean won, resulting in a lower won-dollar exchange rate in the first half of next year. The effect of South Korea's inclusion in the World Government Bond Index (WGBI), scheduled for April next year, is also expected to have a positive impact on dollar supply and demand. Park analyzed, "The US dollar is expected to weaken in the first half and strengthen in the second half. The Korean won is forecast to appreciate in the first half and remain steady in the second half," and added, "The Japanese yen and Chinese yuan, which tend to move in tandem with the Korean won, are also likely to maintain an appreciating trend in the first half of 2026. This will also contribute to the won's strength in the first half of the year."