Even Bank of Korea... This Year's Growth Forecast 1.5 → 0.8% 'Halved' [Bank of Korea also Officially Announces 0% Growth This Year]

The economic growth forecast for this year has been halved in just three months. This is due to the slump in domestic demand and the shock from US tariffs.

The Bank of Korea lowered the base rate to 2.5% for the first time in 2 years and 7 months, aiming to promote consumption and investment. There is also a possibility that the rate cut could be further expanded depending on future economic responses.

On the 29th, the Monetary Policy Committee of the Bank of Korea revised down this year's economic growth forecast for Korea to 0.8%. This is 0.7 percentage points lower than the forecast in February (1.5%), and it is the first time in five years that the Bank of Korea has adjusted its annual forecast by more than 0.7 percentage points since August 2020, when it lowered the forecast for that year from -0.2% to -1.3%, a decrease of 1.1 percentage points.

The Bank of Korea's forecast is the same as the average forecast of 8 major foreign investment banks (IB) as of the end of last month and the forecast presented by the Korea Development Institute (KDI) on the 14th of this month. If the economic growth rate remains at 0.8% this year and 1.6% next year, it will be the first time since related statistics were compiled that it has stayed around 1% for two consecutive years.

During the foreign exchange crisis, it rebounded from -4.9% in 1998 to 11.6% in 1999, and during the global financial crisis, it rose from 0.8% in 2009 to 7.0% in 2010. During the COVID-19 pandemic, it recovered from -0.7% in 2020 to 4.6% in 2021.

The main reason the Bank of Korea drastically lowered its growth forecast is the significant impact of delayed domestic recovery, such as consumption and construction investment, which continued the sluggish trend following negative growth in the first quarter and in April. Lee Chang-yong, Governor of the Bank of Korea, stated, "The impact of construction was the greatest," and "It acted as a factor in lowering the growth forecast by about 0.4 percentage points."

Due to external risks such as the tariff war initiated by the US, even exports, which are the backbone of the domestic economy, are in an unstable state. Governor Lee explained, "This year, domestic demand is assumed to contribute 0.8 percentage points to the growth rate, and the net export contribution is assumed to be 0%." He added, "Next year, the net export contribution is expected to worsen to -0.3 percentage points."

On this day, the Monetary Policy Committee unanimously lowered the base rate from 2.75% to 2.50%. This is the fourth cut since October last year. Governor Lee said, "The growth rate has weakened significantly more than expected," and "There is a possibility that the extent of future base rate cuts may increase."

eastcold@fnnews.com Kim Dong-chan Reporter