Economists Cut Korea Growth Views Ahead of Trump’s Return
(Bloomberg) -- Economists trimmed their growth forecasts for South Korea again and brought forward their interest-rate cut views in a survey that comes ahead of Donald Trump’s return to the White House with protectionist policies that may weigh on the major exporter’s outlook.
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South Korea’s gross domestic product will probably grow 2.3% and 2% in 2024 and 2025, according to median forecasts by 38 economist polled by Bloomberg. A previous survey had already revised those estimates down to 2.4% and 2.1%.
The latest survey was conducted just before Trump’s victory in the US election. That shows the outlook for South Korea’s economy was already fraying regardless of who would win, partly due to cooling export momentum. The lowering of the growth forecasts points to dimming optimism for an economy that may end up among those most hit by Trump’s proposed trade tariffs.
If tariffs are introduced at 60% for China and 20% for the rest of the world, prompting retaliation, South Korea’s exports to the US could end up sliding 55% by 2028, Bloomberg Economics said Friday in a report.
Even in the near term, a continued softening of growth would be a concern for the Bank of Korea and might favor the case for bringing forward further interest rate cuts to support the economy over the next year. The central bank is due to update its own projections at a policy meeting later this month.
“The BOK will have to cut its growth forecast by a big margin in November to reflect the negative impact of Trump’s campaign pledges on Korea’s exports,” said Kim Myoung-sil, an analyst at iM Securities Co. “The BOK’s rate cuts will likely be concentrated in the early half of next year.”
The latest survey shows economists expect the BOK to cut its main policy rate to 2.5% by the third quarter of next year from 3.25% currently, a quarter earlier than forecast in the previous survey.
BOK Governor Rhee Chang-yong said Friday it was still too early to assess the impact of Trump’s win on South Korea’s monetary policy. Rhee said it would require a week or two for the dust to settle after the election result.
In the meantime, Finance Minister Choi Sang-mok said the government would respond “actively” if market volatility becomes excessive.
Rhee and Choi met along with other financial policymakers to discuss post-US election strategies and a decision overnight by the Federal Reserve to cut the federal funds rate.
What Bloomberg Economics Says...
“It’s likely Trump will voice strong complaints about South Korea’s growing trade surplus with the US. Part of the expansion is due to increased shipments of intermediate goods to the US, where South Korean firms have been expanding production facilities. But US on-shoring by Korean companies will probably be overshadowed by the US trade deficit in Trump’s eyes.”
-- Hyosung Kwon, economist
To read the report, click here
The South Korean central bank is widely forecast to hold its benchmark interest rate unchanged when it meets on Nov. 28, following its policy pivot with a quarter-percentage-point cut in October.
--With assistance from Whanwoong Choi.
(Updates with Bloomberg Economics analysis and a chart)
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