ING Bank: "Next Year Korea's Base Interest Rate Peaks at 3.5%... Economic Growth Limited to 0.6%"

US Interest Rates Expected to Reach 5% Range... South Korea Likely to Follow
Concerns Over Economic Recession Next Year Due to Real Estate Market Contraction and Massive Household Debt

Kang Minju, Senior Economist at ING Bank (Provided by ING Bank)

[Asia Economy Reporter Minwoo Lee] It is forecasted that South Korea's base interest rate will peak at 3.5% next year. The economic growth rate is expected to be only 0.6%.

On the 15th, Dutch financial institution ING Bank held the '2023 Korea Economic Outlook and Sustainable Finance Press Briefing' at Lotte Hotel Seoul in Myeongdong, Jung-gu, Seoul, where this forecast was presented.

Kang Minju, Senior Economist at ING Bank Seoul Branch, said, "The U.S. Federal Reserve (Fed) is expected to raise policy rates to the final 5% range by increasing rates by about 50 basis points (bp; 1bp = 0.01 percentage points) in the first half of next year, and South Korea will inevitably follow suit," adding, "The Bank of Korea will conclude the rate hike cycle with a peak base rate of around 3.5% next year."

She continued, "The U.S. is also expected to start lowering rates gradually from the third quarter of next year," and added, "(South Korea) is expected to shift to a rate cut cycle in the third quarter, considering the increasing pain of households and marginal companies." Regarding the direction of the won-dollar exchange rate, it is expected to reach 1,350 won per dollar in the fourth quarter of this year and 1,400 won in the first quarter of next year, then gradually decline. It is forecasted to return to the 1,250 won range by the end of next year.

Economist Kang particularly gave a negative outlook on South Korea's economic growth rate, expecting it to fall to 0.6% next year. This is significantly below the Bank of Korea's 2.1% and the 1.8% forecast by the Korea Development Institute (KDI) and Hana Financial Management Research Institute. She explained, "South Korea's economy is heavily influenced by external demand," adding, "Next year, the growth rates of the U.S. and Europe are expected to contract by -0.4% and -0.7%, respectively." This analysis is based on the sluggish European economy until the first half of next year due to the war between Russia and Ukraine, and the impact of the Fed's rate hikes on the recession.

Additionally, she noted that the domestic real estate market has already contracted due to rate hikes, and combined with massive household debt, consumption and investment are expected to slow next year. However, she added, "From a long-term perspective, South Korea's growth trend after COVID-19 is just on one of the paths toward normalization, so there is no need to panic."

This content was produced with the assistance of AI translation services.