Bank of Korea's Growth Rate for This Year at 0.9%... First Ever Concern of Falling Below 2% for Two Consecutive Years Becomes Reality

[Financial News] Despite the execution of a supplementary budget, this year's economic growth rate forecast fell below 1%. Although consumption improvement became evident due to revived economic sentiment, construction investment was significantly weaker than expected, dragging down the growth rate. The Bank of Korea plans to maintain a rate cut stance until the first half of next year, considering the possibility of export slowdown due to tariff impacts.

On the 28th, the Bank of Korea's Monetary Policy Committee presented this year's economic growth rate forecast for South Korea at 0.9%. It was adjusted upward by 0.1%p from last May due to the recovery in consumption and strong exports. This is the first time in 21 months since November 2023 (2.3%) that the Bank of Korea has raised its growth rate forecast.
The issue is that despite the upward adjustment of the Bank of Korea's forecast, this year's economic growth rate remained at the 'economic crisis' level of 0%. Since the 1960s, annual growth rates below 1.0% have been limited to economic crises such as the 1998 foreign exchange crisis (-4.9%), the 1980 oil shock (-1.5%), the 2020 COVID-19 pandemic (-0.7%), and the 2009 global financial crisis (0.8%).
Particularly, the sluggish construction sector is considered the biggest obstacle to this year's economic growth rate. Governor Lee said, "The sluggish construction sector acted as a factor lowering the growth rate by 0.3%p," and "If we assume the construction investment growth rate is '0', this year's growth rate forecast would have been 2.1%."
Next year's growth rate forecast was also presented at 1.6%, the same as the forecast in May, falling below the potential growth rate. Governor Lee explained, "While the domestic demand improvement trend will continue, the impact of U.S. tariff imposition becoming full-fledged may increase the possibility of export slowdown." If the South Korean economy grows according to the Bank of Korea's forecast, it will be the first time in history that the annual growth rate falls below 2% for two consecutive years.
To respond to this low growth trend, the Bank of Korea decided to maintain the monetary policy easing stance until the first half of next year. According to the Bank of Korea, quarterly growth rates are expected to perform well at 1.1% in the third quarter of this year due to psychological improvement effects from livelihood recovery consumption coupons, but remain sluggish at 0.2% in the fourth quarter, and 0.3% in both the first and second quarters of next year.
Governor Lee stated, "There is a high possibility that low growth rates will continue until the first half of next year, so there is a high possibility of maintaining the rate cut stance."
eastcold@fnnews.com Dongchan Kim, Reporter