When Will Good News Come... "Korean Economy, No Clear Path Ahead" Warnings Pour In

"Korea's 1.9% Growth is Difficult"

Global IB Lowers Expectations to 1.3%

Global investment banks (IB) have projected that Korea's economic growth rate could remain in the low 1% range. This suggests that achieving the 1% high-end growth rate proposed by the Bank of Korea and the Ministry of Strategy and Finance will be challenging. The sharp decline in consumer sentiment due to the impeachment situation is cited as a reason for this outlook.

According to the International Finance Center on the 7th, the average forecast for Korea's real GDP growth rate this year by eight global IBs is 1.7%. This is a 0.1 percentage point drop from 1.8% at the end of November last year, before the martial law situation. IBs have consecutively lowered Korea's economic growth rate forecast from 2.1% at the end of September last year to 2.0% at the end of October.

This is below the forecast (1.9%) presented by the Bank of Korea on November 28 last year and the government's forecast (1.8%) on the 2nd of last month. Global IBs view Korea's economic situation more pessimistically than domestic institutions.

Last month, JP Morgan lowered its growth forecast by 0.4 percentage points from 1.7% to 1.3%. JP Morgan pointed to the deepened domestic recession due to the martial law situation as a decisive factor. Park Seok-gil, head of JP Morgan, said, "The economic sentiment index fell significantly overall in December last year, and it is still too early to expect a meaningful upward reversal in January this year."

He added, "We reviewed the data up to November last year and adjusted the fourth-quarter growth forecast downward," and "It seems difficult for domestic uncertainty to be resolved in the short term, so we lowered the first-quarter figures this year, resulting in a drop in the annual figures as well."

According to the Bank of Korea, last month's consumer sentiment index was 88.4, down 12.3 points from November (100.7). This was the largest drop since March 2020, during the COVID-19 period, when it fell by 18.3 points. There is also an analysis that a slight slowdown in consumption is appearing, centered on card data.

In addition to JP Morgan, HSBC adjusted its growth forecast from 1.9% to 1.7%. The other six institutions have not yet adjusted their growth forecasts. The growth forecast for 2026 remains the same as the end of November prediction at 1.8%.

As the slowdown in growth becomes visible, attention is focused on the policies of the government and the Bank of Korea. The government is known to be considering early execution of the budget and the possibility of formulating an additional supplementary budget. The Bank of Korea is contemplating an additional rate cut at the monetary policy direction meeting on the 16th.

Lee Chang-yong, Governor of the Bank of Korea, mentioned in his New Year's address on the 2nd, "As political and economic uncertainties have increased unprecedentedly, monetary policy needs to be operated flexibly and swiftly in response to changes in circumstances." However, he told reporters, "Nothing has been decided in any direction yet," and "We will decide while looking at the data until just before the Monetary Policy Committee."

Kang Jin-kyu Reporter josep@hankyung.com