Global investment banks are increasingly sounding alarm bells over South Korea’s unprecedented low growth trajectory amid continuing political instability. (Image courtesy of Yonhap)
SEOUL, Jan. 8 (Korea Bizwire) — Global investment banks are increasingly sounding alarm bells over South Korea’s unprecedented low growth trajectory amid continuing political instability, with attention turning to a potential interest rate cut in January.
JP Morgan has issued the most pessimistic outlook, projecting just 1.3% growth for the country in 2025, as domestic economic sentiment deteriorates and a surge in exchange rates fuels inflation concerns.
According to the Korea Center for International Finance on January 7, the average growth forecast for South Korea’s real GDP among eight global investment banks fell to 1.7% in late December, down from 1.8% in late November. This projection falls below both the Bank of Korea’s forecast of 1.9% and the government’s recent estimate of 1.8%.
The average forecast has been on a downward trend for three consecutive months, dropping from 2.1% in late September to 2% in late October following confirmation of third-quarter export declines. In the past month alone, JP Morgan cut its forecast from 1.7% to 1.3%, while HSBC lowered its projection from 1.9% to 1.7%.
JP Morgan, which provided the lowest forecast among the investment banks, highlighted the deepening domestic economic slump following the brief imposition of martial law as a crucial factor.
Private consumption has already shown signs of contraction, with national credit card usage falling below last year’s levels following the martial law declaration. There are also concerns about potential direct impacts on exports if U.S. President-elect Donald Trump implements substantial tariff increases after his inauguration on January 20.
The investment banks also forecast an average growth rate of 1.8% for 2025, suggesting South Korea might experience unprecedented back-to-back years of growth in the 1% range – something that hasn’t occurred since records began in 1953. This stands in stark contrast to previous economic crises, where the economy bounced back quickly.
Individual forecasts for 2025 vary widely, with Goldman Sachs and JP Morgan projecting 2.1%, HSBC at 1.9%, Nomura at 1.8%, Citi at 1.6%, Barclays at 1.5%, and UBS at 1.3%.
Meanwhile, inflation forecasts have been revised upward, with JP Morgan and HSBC both raising their projections to 2%. While the average among the eight banks remains at 1.8%, analysts note increasing inflationary pressures due to rising import prices driven by exchange rate volatility.
Bank of Korea Governor Rhee Chang-yong has indicated openness to a possible rate cut, stating in his New Year’s address that “monetary policy needs to be managed flexibly and nimbly in response to changes in circumstances, given the unprecedented political and economic uncertainties.”
However, he later clarified that no direction has been decided, saying decisions will be based on data available up until the monetary policy committee meeting.
M. H. Lee (mhlee@koreabizwire.com)
