[Monetary Policy Committee Poll] ② Expectations for 2% Growth Next Year Rise... "Bank of Korea Likely to Raise Its Forecast"

Survey of 13 Asia Business Daily Experts
Most Forecast 1.0% Growth for This Year, 1.9% for Next Year
More Experts Now Expect Growth to Exceed 2%
Housing Prices and Household Debt Remain the Biggest Variables for Rate Decisions

Ahead of the Bank of Korea's final base interest rate decision and economic outlook announcement for this year on the 27th, the majority of domestic experts predict that South Korea's economic growth rate will exceed 1.9% next year. The most common forecast for this year's growth rate was 1.0%. Experts believe the Korean economy will hit its lowest point this year and recover sharply next year. Despite U.S. tariff impositions, the semiconductor sector is expected to drive robust exports, while the government's expansionary fiscal policy is projected to keep domestic demand solid. With concerns over low growth easing, most experts cited financial stability-especially housing prices and household debt-as the main variables for the Bank of Korea's monetary policy going forward.

Most Expect Next Year's Growth Rate to Exceed 1.9%... Experts Agree "Bank of Korea Will Also Raise Its Forecast"

According to a survey conducted by The Asia Business Daily from November 18 to 21 with 13 economic experts from domestic and international economic research institutes, securities firms, and banks, 73% of respondents (8 people; 2 did not respond) expect South Korea's economic growth rate to be at least 1.9% next year. Specifically, 1.9% was the most common forecast (4 people), followed by 2.0% (3 people) and 2.2% (1 person). Only one expert predicted 1.6%, which matches the Bank of Korea's August forecast. Two others projected 1.8%.

For this year, the majority of experts (6 people, 55%) expect a 1.0% growth rate. This was followed by 1.1% (2 people) and 1.2% (1 person). Two experts forecast 0.9%, matching the Bank of Korea's August projection.

Experts expect the semiconductor industry, which has entered a supercycle, to continue driving exports next year, and that the government's expansionary fiscal stance will further boost the growth rate. The elimination of tariff uncertainty following the Korea-U.S. trade agreement and a modest recovery in consumption are also expected to support additional growth. Downside risks have decreased compared to this year, and the conditions for upside potential have improved. As a result, the number of experts forecasting a 2% range growth rate for next year increased from two in last month's survey to four this time.

Kang Minjoo, Senior Economist at ING Bank, who raised her forecast for next year's growth rate from 1.8% to 2.0%, said, "The strong export performance driven by the semiconductor cycle is more robust than expected, and the government's expansionary fiscal policy is likely to continue next year. With the U.S. Federal Reserve expected to cut rates and a rebound in the construction sector, we anticipate a return to a 2% range growth rate next year." Jeong Seongtae, a researcher at Samsung Securities, who gave the highest forecast of 2.2%, said, "Semiconductor exports will expand next year, leading to increased investment and improved consumption."

Some analysts also said that the government's "super budget" will boost the growth rate. The government has submitted a budget proposal for next year totaling 728 trillion won, up 8.1% from this year, to the National Assembly. Yoon Yeosam, a researcher at Meritz Securities, said, "Although exports are expected to slow due to U.S. tariffs, the government's expansionary fiscal policy will stimulate corporate investment, and the growth rate will maintain a stable trend centered on improvements in facility and construction investment." He forecast next year's growth rate at 2.0%, leaving open the possibility of further increases.

Experts unanimously expect the Bank of Korea to raise its growth forecasts for both this year and next year in its November economic outlook. The experts who responded (9 people) expect the Bank of Korea to raise its projections to 1.0-1.1% for this year and 1.8-2.0% for next year.

Inflation Rate Expected to Fall from 2.1% to 1.9%... "Stable Oil Prices Despite Currency Pressure"

The majority of experts expect the consumer price inflation rate to decline further next year compared to this year.

This year, 7 experts (with 3 not responding) forecast an inflation rate of 2.1%, making it the most common prediction. Two experts forecast 2.0%, meaning most experts expect the rate to align with the Bank of Korea's forecast (2.0%). The remaining expert predicted 2.2%.

Most experts expect next year's inflation rate to be lower than this year's. Of the 9 experts who participated in both this year's and next year's forecasts, all but one shared this view. Specifically, 1.9%-matching the Bank of Korea's projection for next year-was the most common forecast (4 people), followed by 2.0% (2 people) and 2.1% (1 person). There were also projections as low as 1.4% and as high as 2.3%.

Experts believe that although the strong won-dollar exchange rate is putting upward pressure on import prices, the stabilization of international oil prices will ease overall inflationary pressure. Ahn Yeha, a researcher at Kiwoom Securities, said, "This year's inflation will be slightly higher due to agricultural and fishery prices, but considering the expected stabilization of oil prices next year, inflation will likely remain at 1.9%." Ahn Jaegyun, a researcher at Korea Investment & Securities, also said, "The higher won-dollar exchange rate is a burden, but with global commodity prices, including oil, stabilizing, inflation is expected to remain around the 2% target."

There was also a forecast that inflation will drop sharply from 2.1% this year to 1.4% next year. Park Seokgil, an economist at JP Morgan, said, "Core inflation has been gradually declining over the past two years with a time lag, and international oil prices, which have fallen significantly compared to the beginning of this year, could fall further next year. We should also consider that demand-side price pressures have recently weakened." On the other hand, researcher Yoon Yeosam expects inflation to rise to 2.3% next year. He explained, "Although oil prices are stable, the high exchange rate is maintaining upward pressure on import prices. It is also time to monitor variables such as public utility rate hikes."

While the consensus is that the base interest rate will remain unchanged this month, experts still consider "real estate" to be the biggest variable. Of the 11 respondents (2 did not respond), 8 cited "housing prices and household debt" as the top variable. The exchange rate was cited by 2 experts, and 1 cited the recent turnaround in the economy. In the second-priority variables, there was no mention of factors such as defending against low growth or delayed domestic recovery that would support a rate cut. Given the rebound in the growth rate, the recently highlighted concerns about the high exchange rate, and the persistent uncertainty in the real estate market, it appears that the Bank of Korea's rate decisions next year may lean toward a more conservative stance.