Economists cut South Korea growth views ahead of Trump’s return
ECONOMISTS trimmed their growth forecasts for South Korea again and brought forward their rate cut views in a survey that comes ahead of Donald Trump’s return to the White House with protectionist policies that may further weigh on the major exporter’s outlook.
South Korea’s gross domestic product will probably grow by 2.3 per cent and 2 per cent in 2024 and 2025, according to median forecasts by 38 economists polled by Bloomberg. A previous survey had already revised those estimates down to 2.4 per cent and 2.1 per cent.
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.
A continued softening of growth would be a concern for the Bank of Korea (BOK) and might favour 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. “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 per cent by the third quarter of next year from 3.25 per cent currently, a quarter earlier than forecast in the previous survey.
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BOK governor Rhee Chang-yong said on Friday (Nov 8) that 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.
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-point cut in October. BLOOMBERG
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